The small business tax credit is only available with SHOP coverage, which you can purchase through an agent or broker or directly with a health insurance company that offers SHOP coverage. To qualify for a small business health insurance tax credit, you must cover at least 50 percent of premiums for your employees (not including dependents) and have fewer than 25 full-time employees whose average annual wages are less than $50,000.
The number of full-time employees is calculated based on the total number of hours of service for which you pay wages to employees during the year, up to 2,080 hours per employee. This number is then divided by 2,080 and rounded down to the next lowest whole number to determine your number of full-time employees (or full-time equivalent employees). Seasonal workers are not included unless they work for more than 120 days during the tax year. Business owners and their family members generally are not included either. For more information, see this reference.
Average wages are determined by adding up the total amount of wages you paid during the tax year, and dividing by your number of full-time employees for the year. You may round down to the nearest $1,000.
The amount of the tax credit is set on a sliding scale based on the number of employees and average wages, with the maximum credit going to firms with 10 or fewer full-time employees and average wages equal to or less than $25,000. Employers who are not tax-exempt are eligible for a higher tax credit than employers who are tax-exempt.
The maximum value of this sliding scale tax credit is 50 percent of premiums paid by small businesses. Small businesses can claim the credit on your annual income tax return, using Form 8941. Tax-exempt employers can claim the tax credit as a refundable credit by filing Form 990-T with an attached Form 8491. Eligible employers cannot claim the credit for more than two consecutive taxable years. (IRS, Understanding the Small Business Health Care Tax Credit).