# Small business health care tax credit calculator

Source: https://www.getprescience.com/tools/small-business-health-care-tax-credit-calculator
Author: Rishab Jain, Cofounder and CEO, Prescience
Published: 2026-11-03
Updated: 2026-11-03
Cite as: Rishab Jain. "Small business health care tax credit calculator." Prescience, November 3, 2026. https://www.getprescience.com/tools/small-business-health-care-tax-credit-calculator

The small business health care tax credit pays back up to 50% of what a small employer spends on employee premiums, or 35% for tax-exempt employers. It's for companies with fewer than 25 full-time equivalent employees and average wages under $68,200 in 2026, and only for coverage bought through the SHOP Marketplace. The full credit goes to employers with 10 or fewer FTEs and average wages of $34,100 or less; above that it phases out. Enter your numbers to estimate your credit.

- **Maximum credit:** 50% of premiums (35% tax-exempt)
- **Size limit:** Fewer than 25 FTEs
- **2026 wage phase-out:** $34,100 to $68,200
- **How long:** Two consecutive tax years

## Estimate your credit

_Interactive calculator: open the page in a browser to use it. The rules and figures it applies follow._

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.

> **Owners and their families don't count:** Owners, partners, 2% S corporation shareholders and their family members are left out of FTEs, wages and the premiums the credit is based on. A company made up only of owners can't claim it. Seasonal workers employed 120 days or less are also left out unless they're covered by the plan.

## How the phase-out works

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

**Credit reductions, 2026**

| Reduction | Formula | Example |
| --- | --- | --- |
| FTEs over 10 | (FTEs − 10) ÷ 15 | 15 FTEs: 5 ÷ 15 = 33.3% |
| Wages over $34,100 | (average wage − $34,100) ÷ $34,100 | $40,000: $5,900 ÷ $34,100 = 17.3% |
| Total reduction | Sum of both | 50.6% |

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

**A small shop that gets the full credit**

Illustrative. A for-profit company with 8 FTEs and $30,000 average wages pays $48,000 of employee premiums through SHOP in 2026.

- Maximum credit: $48,000 × 50% = $24,000
- FTE reduction: None (10 or fewer)
- Wage reduction: None ($34,100 or less)
- Credit: $24,000

**$24,000 back,** half of what the company spent on premiums.

**A 15-person team in the phase-out**

Illustrative. 15 FTEs with $40,500 average wages (rounded down to $40,000) and $90,000 of employer premiums.

- Maximum credit: $45,000
- Total reduction: 33.3% + 17.3% = 50.6%
- Credit: $22,214.08
- If tax-exempt (35%): $15,549.85

**About $22,200,** still meaningful, but only for two years.

## 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.

**Premiums above the state average**

Illustrative. A company pays 80% of a $900 monthly self-only premium for 6 employees, and the state's average self-only premium is $800 a month.

- Employer premiums actually paid: 6 × $720 × 12 = $51,840
- Capped at 80% of the state average: 6 × $640 × 12 = $46,080
- Maximum credit (50%): $23,040

**The credit is based on $46,080, not $51,840.** Expensive plans don't earn a bigger credit.

## 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](https://www.getprescience.com/tools/qsehra-calculator) and our guide to [health insurance alternatives for small business](https://www.getprescience.com/guides/health-insurance-alternatives-for-small-business).

> **Prescience Choice: ICHRA for $20 per enrolled employee per month.** No SHOP credit? Choice gives every employee a tax-free allowance toward their own plan, with no cap, unlike a QSEHRA.
> - **You set a monthly allowance;** each employee picks and owns an individual plan
> - **$20 per enrolled employee per month,** with no setup or platform fee
> - **Works in all 50 states and DC,** so remote and multi-state teams fit
> - **Plan comparison, enrollment help and Crystal,** our assistant for benefits questions
> Best for small teams, teams in several states, and anyone pricing ICHRA. [Get a Choice quote](https://www.getprescience.com/employer/choice)

**Price the employer budget without assuming the credit**

Use your actual census and contribution policy to compare a written proposal. Treat any tax credit as a separate eligibility-dependent item; a quote does not establish that the coverage qualifies for the credit.

[Compare my employer coverage budget](https://www.getprescience.com/quote)

[Review the full affordability decision](https://www.getprescience.com/guides/most-affordable-health-insurance-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.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** After the credit's two years end, Diamond's quote is a good benchmark for your SHOP renewal.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## Frequently asked questions

**Who qualifies for the small business health care tax credit?**

Employers with fewer than 25 full-time equivalent employees, average annual wages under $68,200 in 2026, coverage bought through the SHOP Marketplace, and at least 50% of employee-only premiums paid by the employer.

**How much is the small business health care tax credit?**

Up to 50% of the employer's premium payments, or 35% for tax-exempt employers. It phases out as FTEs rise above 10 and average wages rise above $34,100 in 2026.

**How many years can I claim it?**

Two consecutive tax years, starting with the first year you claim it.

**Do owners count toward FTEs?**

No. Owners, partners, 2% S corporation shareholders and their family members are excluded from FTEs, wages and the premiums used for the credit.

**Which form do I use?**

Form 8941, Credit for Small Employer Health Insurance Premiums. For-profit employers carry it to Form 3800; tax-exempt employers claim it on Form 990-T.

**Can I get the credit without SHOP?**

No. Since 2014, only coverage bought through a SHOP Marketplace qualifies, with narrow exceptions for areas where no SHOP plan is available.

## Sources

- [IRS, Small business health care tax credit and the SHOP Marketplace](https://www.irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace)
- [IRS, Instructions for Form 8941](https://www.irs.gov/instructions/i8941)
- [IRS Revenue Procedure 2025-32 (2026 inflation adjustments, including § 45R)](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf)
- [HealthCare.gov, SHOP eligibility](https://www.healthcare.gov/small-businesses/choose-and-enroll/qualify-for-shop-marketplace/)
- [HealthCare.gov, Small business health insurance](https://www.healthcare.gov/small-businesses/employers/)