Tax credits are especially powerful because they reduce your tax bill dollar for dollar, unlike deductions, which only lower taxable income. One credit that often flies under the radar — yet can still offer meaningful savings — is the tax credit available to small businesses that provide health insurance to their employees.
For qualifying employers, this credit can significantly offset the cost of offering health coverage.
Who Can Qualify for the Health Care Coverage Credit
Under the Affordable Care Act (ACA), certain small employers that provide health insurance to employees may be eligible for this credit. While it has been available for many years and is generally limited to a two-year period, some businesses may still qualify.
This can include:
- Newer businesses offering health insurance for the first time
- Established businesses that only recently began providing employee coverage
How Much Is the Credit Worth
The maximum credit can equal 50% of the health insurance premiums paid by the employer, provided the business pays at least 50% of the total premium (or a benchmark premium).
For the 2025 tax year:
- The full credit is available to employers with 10 or fewer full-time equivalent employees (FTEs)
- Average annual wages must be $33,300 or less per employee
Partial credits may still be available to businesses with:
- Fewer than 25 FTEs
- Average annual wages under $66,600
These thresholds are adjusted annually for inflation. For 2026, the wage limits increase to $34,100 and $68,200, respectively.
Timing Rules You Need to Know
The health care coverage credit can only be claimed for two consecutive tax years. However, credits claimed before 2014 don’t count toward this limit.
Here’s how timing may work:
- If you began offering health insurance in 2025, you may claim the credit on your 2025 and 2026 tax returns
- If coverage starts in 2026, the credit may be available for your 2026 and 2027 returns
Any premiums that don’t qualify for the credit may still be deductible as ordinary business expenses, subject to standard deduction rules.
Is Your Business Eligible
Additional rules apply, and eligibility can vary based on employee count, wages, and premium contributions. If you’re unsure whether your business qualifies for the full or partial health care coverage credit, professional guidance can help.
We can evaluate your eligibility, identify other tax credits that may be available on your 2025 return, and recommend steps you can take now to potentially qualify for credits on your 2026 return.
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