Credit for Small Employer Health Insurance Premiums: Form 8941

Is the Credit for Small Employer Health Insurance Premiums Worth it for Venture Backed Startups? **NO.  While many startups offer health insurance, exceptionally few meet the requirement that the average full time salary of less than $50,000 per year. Across the 500+ startups we worked with in 2020, none were eligible for the Credit for Small Employer Health Insurance Premiums.

This is a federal tax credit offered by the IRS that is available to startups with <25 employees who provided health insurance, and whose average salary was <$50,000 per employee.

To be eligible for the Credit for Small Employer Health Insurance Premiums, your startup must have: 

• Paid health insurance premiums provided through a Small Business Health Options Program (SHOP) Marketplace
• Covered >50% of the health insurance cost
• Had <25 full time employees
• Paid average annual wages for the tax year of less than $50,000 per FTE

The maximum credit that a small business can receive for employer paid health insurance is 50% of the health insurance premiums paid. It can be taken against both the regular and alternative minimum tax. The maximum for small tax-exempt employers is 35%.

You can apply for the Credit for Small Employer Health Insurance Premiums on form 8941 and 3800, which is a part of the 1120 C-Corporation Income Tax Return, due 4/15 every year and can be extended to 10/15 every year.

If you would like more information on the Credit for Small Employer Health Insurance Premiums, you can check out the Form 8941 section on the IRS website here.