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The Small Business Health Care Tax Credit


Premiums Paid

You can claim the credit only for premiums you paid for health insurance coverage under a qualifying arrangement, and only for people counted as employees for credit purposes.

If you pay a portion of the premiums while your employees pay the rest, only include the amount you pay. For this purpose, any premium paid through a salary reduction arrangement under a section 125 cafeteria plan is not treated as an employer paid premium. For more information on cafeteria plans, see section 1 of Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

Additionally, if you were entitled to a state tax credit or subsidy, include that amount in your share of the premiums. If the tax credits and subsidies are paid to you or your insurance provider, they are treated as an amount you paid for coverage.

If you contributed to a multi-employer plan, which in turn is used to pay premiums for health insurance coverage for your employees, you can generally count the portion of your contribution that was used to pay for the coverage in finding your credit.

Special Treatment of Certain Employees

Leased Employees

If you employ people from a leasing organization, premiums are paid by the organization are not counted when computing your credit. Under certain circumstances, leased employees count only partially or not at all.

Seasonal Employees

The premiums you pay for your seasonal employees' insurance coverage are counted in computing your credit, even if they work 120 days out of the year or fewer and are not counted for your FTEs or average wages.

Household and Other Nonbusiness Employees

If you are a sole proprietor, these employees are included with your business employees when computing the credit.


If you employ ministers and they are considered employees under the common-law test for determining worker status, they are included in calculating your FTEs.

Employees Not Counted

Certain types of employees are not considered employees for purposes of the credit. Premiums paid on their behalf are not counted when computing your credit, in the same way that the employees are not included when calculating your wages and your FTEs:

  • The owner of a sole proprietorship,
  • A partner in a partnership,
  • A shareholder who owns (after applying the section 318 constructive ownership rules) more than 2% of an S corporation,
  • A shareholder who owns (after applying the section 318 constructive ownership rules) more than 5% of the outstanding stock or stock possessing more than 5% of the total combined voting power of all stock of a corporation that is not an S corporation,
  • A person who owns more than 5% of the capital or profits interest in any other business that is not a corporation, and
  • Family members or a member of the household who is not a family member but qualifies as a dependent on the individual income tax return of a person listed above. Family members include:
    • A spouse,
    • A child (or descendant of a child),
    • A sibling or step-sibling,
    • A parent (or ancestor of a parent),
    • A step-parent,
    • A niece or nephew,
    • An aunt or uncle, or
    • A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.