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The Small Business Tax Credit

About the Small Business Health Care Tax Credit

Maryland small businesses and nonprofit organizations that provide health insurance coverage to their employees through the Small Business Health Options Program (SHOP) may qualify for a health care tax credit from the IRS to help pay for employee coverage.

Eligibility for the Small Business Health Care Tax Credit is determined by the IRS.

Who is eligible for the health care tax credit?

Maryland small businesses and tax-exempt organizations may qualify for the Small Business Health Care Tax Credit if they:

  • Buy group health insurance coverage through Maryland’s SHOP Marketplace
  • Have fewer than 25 full time-equivalent (FTE) employees

    You could still qualify with 25 or more employees, if some are part-time.
    Total FTEs don’t include the owner or owner’s spouse or family members.

    Calculate your number of FTEs

  • Pay an average annual salary of less than $50,000 (adjusted for inflation)
    This average excludes wages for owner and owner’s spouse or family members.
  • Contribute at least 50 percent toward employee-only health insurance premiums
    Amounts paid toward dependent coverage, if offered, also may be included in this total.

How much is the tax credit?

The tax credit is highest for employers with 10 or fewer full-time equivalent employees paying an average annual wage of $25,000 (adjusted for inflation) or less. The smaller the business, the bigger the credit.

Maximum Tax Credit as a Percentage of Insurance Premium Expenses
Small businesses 50%
Nonprofit or tax-exempt organizations 35%

Frequently Asked Questions

The IRS will determine how much your small business may receive. To find out more, visit the IRS website.

The credit is available only if you obtain coverage for your employees through the SHOP Marketplace. You may qualify for employer health care tax credit if you have fewer than 25 full-time equivalent employees making an average of about $50,000 a year or less. To qualify for the Small Business Health Care Tax Credit, you must also pay at least 50% of your full-time employees' premium costs. You don't need to offer coverage to your part-time employees or to dependents.

The tax credit is worth up to 50% of your contribution toward employees' premium costs (up to 35% for tax-exempt employers). The amount of premium assistance you would receive from the Small Business Health Care Tax Credit depends on the amount you contribute to your employee's premiums and how high their annual wages are.

You may apply for the Small Business Health Care Tax Credit only after being deemed eligible to purchase a plan through Maryland Health Connection's SHOP Marketplace. At the end of the year, when you file your business' taxes, you will fill out Form 8941 to claim the tax credit. The IRS will have final say on how much your small business may receive.

For more information on how to claim the tax credit, visit the IRS website.

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The Small Business Health Care Tax Credit is received at the end of the year when you file taxes and is determined by the IRS, not Maryland Health Connection’s SHOP Marketplace.

You may apply for the Small Business Health Care Tax Credit only after you are deemed eligible to purchase a plan through Maryland Health Connection's SHOP Marketplace. At the end of the year, when you file your business' taxes, you will fill out Form 8941 to claim the tax credit. The IRS will determine how much your small business may receive.

For more information on how to claim the tax credit, visit the IRS website.

(The tax credit small businesses may receive from enrollment in the SHOP program is different from the tax credit individuals receive from enrollment into individual plans, the Advance Premium Tax Credit.)

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