Benefits Decisions Are Money Decisions
Get clear on how health benefits touch your taxes and your budget, so every choice you make comes with fewer surprises.
Where Benefits Meet Your Bottom Line
Offering health benefits can change your tax picture in a few ways. Employer premium payments are generally a deductible business expense, some very small employers may qualify for a federal tax credit, and reimbursements you provide through certain arrangements generally do not count as income for your employees. What applies to you depends on your size and business structure, so these guides are a starting point for the conversation with your tax advisor.
Tax Credits and Deductions for Offering Health Benefits
What may come back to you at tax time when you offer coverage, from business deductions to a federal credit for some small employers.
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Managing and Reducing Employee Benefits Costs
Plan design choices that keep your benefits budget steady as your team grows.
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ICHRA Plans for Small Businesses
A set monthly amount per employee, which makes your benefits spend easier to budget.
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Payroll Services
Payroll that keeps pace with your benefits, so deductions land where they should.
Learn moreWhat May Apply to You
Here are the situations that come up most often. Treat each one as a starting point, not a verdict.
You run a very small team
Employers with fewer than 25 full-time equivalent employees and modest average wages may qualify for a federal tax credit. You would generally need to pay at least half of employee-only premiums and offer coverage through a SHOP marketplace, with a limited exception.
Worth knowing: the credit can be worth up to 50 percent of the premiums you pay, for two consecutive years.
You offer an ICHRA
You fund a monthly amount, and employees put it toward their own individual plan. Reimbursements from an employer-funded health reimbursement arrangement, which includes an ICHRA, are generally not counted as income for the employee.
Worth knowing: only the employer can contribute to the arrangement.
You have part-time or seasonal help
For the credit, part-time hours add up to full-time equivalents, with 2,080 hours a year counting as one. Owners and their family members are left out of the count, and so are seasonal workers who work 120 days or fewer.
Worth knowing: this headcount can differ from the one used for other benefits rules, so calculate it carefully.
You are ready to claim
Eligible small businesses claim the credit with IRS Form 8941, and can carry it back or forward if they do not owe tax that year. You can also deduct the premiums you pay above the credit.
Worth knowing: small tax-exempt employers may qualify for a smaller credit, and in some cases a refund.
You are covering yourself, too
Your own coverage follows different rules than your employees'. If you are self-employed with a net profit, a partner with net self-employment earnings, or an S corporation owner with more than a 2 percent stake who receives wages from the company, you may be eligible for a self-employed health insurance deduction.
Worth knowing: it is an adjustment to income claimed with IRS Form 7206, and it can cover your spouse, your dependents, and a child under 27.
These are the headlines, and the details matter. Your tax advisor can confirm what applies to your business and how to claim it.
Tax Questions Owners Ask
How much is the small business health care tax credit worth?
The maximum credit is 50 percent of the premiums you pay, or 35 percent for small tax-exempt employers, and it is available for two consecutive tax years. The credit shrinks as your team or your average wages grow, so the smallest employers receive the most.
What are the eligibility limits for the credit?
You need fewer than 25 full-time equivalent employees, average annual wages below an inflation-adjusted limit, and you must pay at least 50 percent of the cost of employee-only coverage. The IRS lists the wage limit as less than $67,000 per employee for tax year 2025. Check the IRS instructions for Form 8941 for the year you are claiming, since the limit changes.
Can I claim the credit if I offer an ICHRA?
Generally not on an ICHRA alone. The credit is tied to coverage offered through a SHOP marketplace, and HealthCare.gov notes that SHOP coverage is generally the only way to qualify. Ask your advisor which approach makes sense for your team before you choose.
What if my business did not owe any tax this year?
Small businesses can carry the credit back or forward to other tax years. Small tax-exempt employers may be eligible for a refund of the credit, within limits.
Can I still deduct my premiums if I claim the credit?
Generally yes, for the portion of premiums above the credit amount, as a business expense. That is why the credit and the deduction can work together.
Can I claim the credit for a year I missed?
Possibly. You may be able to file an amended return, though refund limits apply. A claim generally has to be filed within three years of filing the original return or two years of paying the tax, whichever is later. Your tax advisor can check which years are still open.
This content is provided for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor to determine how regulations apply to your situation.
Got Questions About What Applies to You?
We can walk you through the benefits side, and your tax advisor can confirm how it all lands at tax time.
Disclosures
We are compensated by the insurance carriers for policies you choose through us. There is no direct cost to you. Compensation may vary by carrier and product. Information on this page is for educational purposes and does not constitute legal, tax, or accounting advice. Please consult your professional advisors about your specific situation. Tax treatment of ICHRA reimbursements can vary by employer and employee. We are licensed to advise clients in Pennsylvania, New Jersey, and Delaware. Contact us to confirm availability in other states.
