Small Business Tax Credit Calculator

If you are a small business...

with fewer than 25 full-time equivalent employees,
that pays an average wage of less than $50,000 a year, and
pays at least half of your employee health insurance premiums...

...then there is a federal tax credit that may put money back in your pocket.


Small businesses that purchase coverage through Covered California for Small Business may be eligible to receive a federal tax credit to help offset the cost of providing health insurance. The amount of credit you are eligible to receive works on a sliding scale. The smaller your business and/or the lower your annual average wage, the larger your credit will be.

Here’s how it can help:

  1. You may be eligible to receive up to 50 percent of employee premiums paid or 35 percent of employee premiums paid if you are a tax-exempt employer
  2. The tax credit is available for two consecutive, taxable years. Even if you are a small business who did not owe tax during the year, you can carry the tax credit backward or forward to other tax years.
  3. Eligible small businesses can also claim a business expense deduction for the premiums in excess of the tax credit. That’s both a tax credit and a deduction for employee premium payments.Tax-exempt employers may be eligible to receive the tax credit as a refund as long as it does not exceed the income tax withholding and Medicare tax liability.

To be eligible for the federal tax credit…

  • You must purchase employee health insurance through Covered California for Small Business.
  • You must pay at least 50 percent of the cost of health coverage for each of your employees.
  • You must have fewer than 25 full-time equivalent employees (FTEs).
  • Your employees must have an average annual wage of less than $50,000 per year (as adjusted for inflation beginning in 2014).

For the purposes of determining whether an employer is a small or large employer as defined by the Affordable Care Act and applicable California law, the employer is required to calculate its total number of “Full-time Equivalent” (FTE) employees.

An FTE employee is not an actual employee, but a calculation involving all part-time and full-time employees who worked during the preceding calendar year or who are reasonably expected to work in the current calendar year if the employer did not exist in the prior year.

Employers are responsible for calculating their total FTE employees and should use the Full-Time Equivalent Calculator available at Healthcare.gov to arrive at this number.

Provide all requested information in the boxes and click "update" below to calculate.

Scenario 1

Scenario 2

Number of full-time equivalent (FTE) employees.
Number of full-time employees participating in your health insurance plan.
Your annual premium contribution (as a dollar amount) per participating employee.
Individual
Families
Individual
Families
Average annual wage per employee.
Plan Year
Select Tax Status Non-Exempt
Exempt
Non-Exempt
Exempt
Total employer premium contribution.
Maximum tax credit (as % of employer contribution).
Percentage reduced by employee count over 10.
Percentage reduced by average wage over $25,000.
Tax credit as % of premium contribution.
Total tax credit for your small business.
Tax credit per participating employee.

To calculate and file the federal small business tax credit, you must use IRS Form 8941, Credit for Small Employer Health Insurance Premiums. For detailed information on completing the IRS Form 8941, see the accompanying Instructions.

If you are a tax-exempt organization, you must also file IRS Form 990-T, Exempt Organization Business Income Tax Return. This form must be filed with the IRS, in order to claim the tax credit, even if you would not ordinarily do so. For detailed information on filling out IRS Form 990-T, see the accompanying Instructions.

Note that this tax credit calculator is only an estimate of your actual tax credit.

Employers are encouraged to consult with their tax professional and the instructions provided by the IRS for additional information on applying and calculating actual amounts.