Form 8941 claims the Credit for Small Employer Health Insurance Premiums, sometimes called the small business health care tax credit. You can qualify if you had fewer than 25 full-time equivalent employees, paid average annual wages under $67,000 per FTE, and paid at least a uniform 50% of premiums for coverage bought through the Small Business Health Options Program (SHOP). As of October 2026 the credit is up to 50% of premiums, or 35% for tax-exempt employers, and it's only available for 2 consecutive tax years.
Everything below comes from the IRS's 2025 Form 8941 and its instructions dated December 17, 2025, as of October 2026.
The three tests
| Test | Rule |
|---|---|
| Qualifying arrangement | You pay a uniform percentage, not less than 50%, of the premium for each enrolled employee's coverage |
| Size | Fewer than 25 full-time equivalent employees (FTEs) for the tax year |
| Wages | Average annual wages under $67,000 per FTE |
FTEs aren't the same as headcount. The IRS's example: an employer with 48 half-time employees has 24 FTEs and can claim the credit. And although the tax code says 'no more than' 25 FTEs, the phaseout means an employer with exactly 25 gets nothing.
The 2-year limit people miss
For tax years beginning after 2013, the credit can only be claimed for a 2-consecutive-tax-year credit period. That period starts the first year you file Form 8941 with line A ticked Yes and a positive credit on line 12. Line C on the form asks exactly this: if any return for a tax year beginning after 2013 and before 2024 already claimed it, you stop. So the timing of your first claim matters. Use it in the two years it's worth the most.
How much the credit is worth, as of October 2026
The maximum is 50% of premiums paid for most small employers, claimed as a general business credit on Form 3800 and usable against both regular tax and alternative minimum tax. Tax-exempt employers get up to 35%, limited to certain payroll taxes they paid, and claim it as a refundable credit on Form 990-T.
The credit shrinks in steps. If you had more than 10 FTEs and average wages over $33,000, both limits reduce it, which can take it to zero even under 25 FTEs and $67,000. State premium subsidies and state tax credits for the same premiums are deducted too.
What counts as premiums you paid
- If a state pays a premium subsidy straight to your insurer, treat that amount as paid by you.
- If you get a state tax credit or a subsidy paid to you, don't reduce the premiums you paid; the subsidy limit is handled on line 10 instead.
- What you pay toward an employee's wellness program counts as premiums.
- What you pay toward an employee's tobacco surcharge doesn't.
- A stand-alone dental plan offered through a SHOP exchange is treated as a qualified health plan for the credit.
Who doesn't count as an employee
Owners and their families are left out of the hours, wages and premiums used for the credit:
- a sole proprietor, a partner, an S corporation shareholder owning more than 2%, and an owner of more than 5% of other businesses
- family members of those owners, from children and parents to in-laws, plus their spouses
- a household member who qualifies as one of those owners' dependents
Former employees and leased staff have their own rules. Premiums for a former employee with no hours may be counted if that person is also treated as an employee for the uniform percentage test. A leased worker can count if they've worked for you substantially full time for at least 1 year under your direction, but don't use premiums the leasing company paid.
Seasonal workers who work 120 or fewer days, such as holiday retail staff, are left out of the FTE and wage counts, but premiums you pay for them still count toward the credit.
Working through the form
- Line A: confirm you paid premiums for coverage through SHOP. If not, you stop, unless an exception applies.
- Line C: confirm you haven't already used your 2-year credit period.
- Lines 1 to 3: employees, FTEs and average annual wages from Worksheets 1 to 3. At 25 FTEs or $67,000 in wages, the credit is zero.
- Lines 4 to 7: premiums paid, capped at the average premium for the small group market, then multiplied by 50% or 35%.
- Lines 8 to 12: the FTE and wage reductions, then the state subsidy limit.
- Line 16: add credits passed through to you and report the total on Form 3800, Part III, line 4h.
Two exceptions worth knowing
- Employers in Hawaii can't claim this credit for premiums for health plan years beginning after 2016.
- Related employers, such as a controlled group, are treated as one employer, and normally only one Form 8941 is filed with a return. Spouses with entirely separate businesses can each file one with a joint return if they meet the conditions in the instructions.
The verdict
Form 8941 is worth the worksheets for a very small team on modest wages that buys cover through SHOP: half the premium back is a large credit. The catch is the 2-year window, which you can't restart. Run the FTE and wage numbers first, check line C, and start the clock in the years your premiums are highest.
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Frequently asked questions
Who can claim Form 8941?
Eligible small employers with fewer than 25 FTEs, average annual wages under $67,000 per FTE, and a qualifying premium arrangement for SHOP coverage.
How much is the small employer health insurance credit?
As of October 2026, up to 50% of premiums paid for most small employers, and up to 35% for tax-exempt employers.
How many years can I claim the Form 8941 credit?
For tax years beginning after 2013, only for a 2-consecutive-tax-year credit period.
Do owners count as employees for Form 8941?
No. Sole proprietors, partners, more-than-2% S corporation shareholders, more-than-5% owners and their family members are excluded.
Can an employer with exactly 25 FTEs claim the credit?
No. The instructions say the phaseout means an employer with exactly 25 FTEs isn't eligible in practice.
Can employers in Hawaii claim the credit?
No. Employers in Hawaii can't claim it for premiums paid for health plan years beginning after 2016.
Where do I report the Form 8941 credit?
Most employers report it on Form 3800, Part III, line 4h; partnerships and S corporations report it on Schedule K, and tax-exempt employers claim it on Form 990-T.
