Tax credits reduce your tax liability on a dollar-for-dollar basis and can therefore be more valuable than deductions, which only reduce the amount of income subject to tax. One credit that has received relatively little attention lately, yet may still offer meaningful benefits for certain small businesses, is the credit available for providing health insurance to employees.
Who is eligible?
Under the Affordable Care Act (ACA), certain small employers that provide employees with health care coverage are eligible for this tax credit. Although it has been available for more than a decade and generally can be claimed for only two years, some small businesses may still be eligible. These may include newer businesses as well as older ones that only recently have begun offering health insurance.
The maximum credit is 50% of group health coverage premiums paid by the employer, if it contributes at least 50% of the total premium or of a benchmark premium. For 2025, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $33,300 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $66,600. (These amounts are annually adjusted for inflation and increase to $34,100 and $68,200, respectively, for 2026.)
As noted, the credit can be claimed for only two years. Also, those years must be consecutive. (Credits claimed before 2014 does not count, however.) If you started offering employee health insurance in 2025, you may be eligible for the credit on your 2025 return (and again on your 2026 return next year). If you are offering coverage beginning in 2026, you may be able to claim the credit when you file your 2026 return next year (and then again on your 2027 return the following year).
Keep in mind that additional rules apply to the health care coverage credit. But premiums that are not eligible for the credit generally can be deducted, subject to the rules that apply to deductions for ordinary business expenses.
Can your business claim the credit?
If you are uncertain whether your business qualifies for a full or partial health care coverage credit, please contact your Rudler, PSC advisor. We can help you evaluate your eligibility and determine the potential benefit. We can also advise you on other tax credits that may be available on your 2025 return, as well as steps you can take this year to position your business to claim additional credits on your 2026 return.
RUDLER, PSC CPAs and Business Advisors
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