Key Takeaways
- Maximum credit: 50% of premiums (35% for tax-exempt employers).
- Requires <25 FTE employees.
- Average wages ≤$34,100 for full credit (Tax Year 2024: $31,900).
- Must purchase coverage through SHOP.
- Credit available for only 2 consecutive years.
- Owners and family members are NOT counted as employees.
Last updated: January 2026
Small Employer Health Insurance Credit
Why This Matters for the Exam
The Small Employer Health Insurance Credit has strict eligibility rules and a unique two-year limitation. The exam tests FTE calculation and phase-out thresholds.
Expect at least 2-3 questions on this credit.
Eligibility Requirements
| Requirement | Threshold |
|---|---|
| Employees | <25 FTE |
| Average wages | ≤$68,200 (completely eliminated above) |
| Premium contribution | Must pay ≥50% |
| Coverage source | SHOP marketplace |
Credit Amounts
| Employer Type | Maximum Credit |
|---|---|
| For-profit | 50% of premiums |
| Tax-exempt | 35% of premiums |
Full Credit Thresholds (Tax Year 2024)
| Element | Full Credit | Complete Phase-Out |
|---|---|---|
| FTE count | ≤10 | ≥25 |
| Average wages | ≤$31,900 | ≥$63,800 |
Calculating FTEs
| Element | Formula |
|---|---|
| Total hours | Sum of all employee hours |
| Cap per employee | 2,080 hours |
| FTE calculation | Total hours ÷ 2,080 |
FTE Example
| Item | Amount |
|---|---|
| 40 part-time employees | |
| Each works 520 hours | |
| Total hours | 20,800 |
| FTEs | 20,800 ÷ 2,080 = 10 |
Phase-Out Rules
| Element | Reduction |
|---|---|
| FTE phase-out | Reduces if >10 FTEs |
| Wage phase-out | Reduces if average wages >$31,900 |
| Both apply | Credit reduced by both factors |
Two-Year Limitation
| Rule | Description |
|---|---|
| Duration | 2 consecutive tax years only |
| Once used | Cannot claim again |
| Clock starts | First year claimed through SHOP |
The Owner Trap
| Excluded | Description |
|---|---|
| Owner | Not counted as employee |
| Owner's family | Spouse, children, parents |
| Owner's premiums | Not included in credit calculation |
Real-World Scenario
Scenario: Small business has 8 FTE employees with average wages of $30,000. Pays $40,000 in health premiums (100% of cost).
- Eligible: Yes (<25 FTE, average wages ≤$31,900).
- Credit: 50% × $40,000 = $20,000.
- Duration: Can claim for 2 consecutive years.
On the Exam
Expect 2-3 questions on this credit, typically:
- FTE Questions: "Calculate FTEs from these employee hours."
- Threshold Questions: "At what average wage does the credit phase out?"
- Duration Questions: "How many years can the credit be claimed?"
The key is to remember: <25 FTE, ≤$31,900 average wages for full credit (Tax Year 2024). 50% of premiums (35% tax-exempt). SHOP required. 2 years only. Owners excluded.
Test Your Knowledge
40 employees × 520 hours each. How many FTEs?
A
B
C
D
Test Your Knowledge
Maximum years to claim Small Business Health Care Credit?
A
B
C
D
Test Your Knowledge
At what Tax Year 2024 average wage does the credit begin to phase out?
A
B
C
D