Small business health care tax credit calculator

Estimate your credit

The calculator follows Form 8941: it rounds FTEs down to a whole number and average wages down to the nearest $1,000, then applies both phase-outs to the maximum credit. It assumes the premiums you enter are at or below your state's average small-group premium, which caps the credit. Your tax preparer will confirm the exact figure.

Who qualifies

• Fewer than 25 full-time equivalent employees. Count total hours paid to employees in the year (up to 2,080 per person) and divide by 2,080.
• Average annual wages under $68,200 in 2026. Total wages paid to employees, divided by FTEs.
• Coverage through the SHOP Marketplace. The credit only applies to qualified health plans bought through SHOP, directly or through a SHOP-registered broker.
• The company pays at least 50% of the premium for employee-only coverage, at the same percentage for every enrolled employee.
• Two years at most. The credit is available for any two consecutive tax years after you first claim it.

How the phase-out works

Start with 50% (or 35%) of the premiums the company paid. Then reduce it by two fractions:

The reductions add up, so a company with 15 FTEs and $40,000 average wages keeps about 49% of the maximum. At 25 FTEs, or average wages of $68,200, the credit reaches zero.

Worked examples

Counting FTEs and average wages

The two numbers that decide the credit are easy to get wrong. Both leave out owners and their families, and both are based on hours and wages for the whole tax year.

1. Add up hours for every eligible employee Use actual hours paid, including vacation and sick leave, up to 2,080 per person. You can also use days worked × 8 or weeks worked × 40.
2. Divide by 2,080 and round down That's your FTE count. 31,200 hours ÷ 2,080 = 15 FTEs.
3. Add up wages for the same employees Use Medicare (FICA) wages, which include 401(k) deferrals but not pre-tax health premiums. Leave out the same owners and family members.
4. Divide by FTEs and round down to the nearest $1,000 $607,500 ÷ 15 = $40,500, which rounds to $40,000.

Note that FTEs aren't the same as headcount. A company with 30 part-time employees working 20 hours a week has 15 FTEs and can qualify, even though it has more than 25 people.

The state average premium cap

The premiums used for the credit can't be more than the average small-group premium in your state, which HHS publishes each year for self-only and family coverage. If your plan costs more than the average, the credit is based on the average instead. This is why the calculator asks for premiums at or below the average: if yours are higher, use the state figure from the Form 8941 instructions.

How to claim it

1. Buy coverage through SHOP Use HealthCare.gov's SHOP or your state's SHOP exchange, often through a SHOP-registered broker.
2. Keep payroll and premium records You'll need hours, wages and premiums paid for each employee for the tax year.
3. Complete Form 8941 It walks through FTEs, average wages, the state average premium cap and the phase-outs.
4. Claim it on your return For-profit employers report it as part of the general business credit on Form 3800; unused credit can be carried back one year or forward 20. Tax-exempt employers claim it on Form 990-T, and it's refundable up to their payroll taxes.

You can't deduct the part of your premiums the credit pays for. If you get a $24,000 credit on $48,000 of premiums, only $24,000 of the premiums is deductible.

Common reasons a claim falls short

• Coverage wasn't bought through SHOP. A plan from a carrier or PEO outside the SHOP Marketplace doesn't qualify, even if it's otherwise identical.
• Counting owners. Including an owner's hours, wages or premiums inflates the numbers and can push a company out of eligibility in an audit.
• Contributions below 50%. The company has to pay at least half of the employee-only premium for every enrolled employee, at a uniform percentage.
• Claiming a third year. The credit period is two consecutive tax years. After that, the plan can stay, but the credit ends.
• Forgetting to reduce the deduction. Premiums covered by the credit can't also be deducted as a business expense.

If you're unsure whether you qualify, a tax preparer can usually tell you quickly from a year's payroll report. It's worth checking before choosing a plan, since the SHOP requirement narrows your options.

Is the credit worth chasing?

For very small, lower-wage employers, yes: half the premium for two years is a lot. For most venture-backed startups, it isn't available, because average wages are well over $68,200. And because it lasts only two years and requires SHOP coverage, I'd look at the five-year cost of the plan you'd be buying, not just the first two years with the credit.

If you're under 50 employees and the credit doesn't apply, a QSEHRA or ICHRA can be a simpler way to help with costs. See the QSEHRA calculator and our guide to health insurance alternatives for small business.

Where Prescience fits

Prescience plans aren't sold through SHOP, so they don't qualify for this credit. If you qualify for a large credit, take it. If you don't, or your two years are up, it's worth comparing a SHOP renewal with Diamond.