Small Businesses and the Affordable Care Act’s Tax Credit

MN Health Staff Writer | September 26, 2013

One of the most advantageous aspects of the Affordable Care Act is a premium tax credit for small businesses.  This credit allows small businesses that meet certain conditions to qualify for a tax credit up to 50% of what they contribute toward their employees’ health insurance premiums.  Below are the conditions that a small business must meet in order to qualify: 

  1. A small business must have less than 25 full-time equivalent employees (FTEs). 
  2. Those employees must be paid, on average, less than $50,000 annually. 
  3. The employer must cover at least 50% of the premium cost for each full-time employee. 
  4. If the above conditions are met, the small business must purchase their plan through the Small Business Health Options Program (SHOP) in order to receive their credit. 


While this may seem straightforward, many exceptions to these rules and calculations apply.  Here are some common examples: 


  • The business owner and most family members cannot be counted as employees when calculating full-time equivalent employees, total wages and premium contributions. 
  • Seasonal workers that work less than 120 days per calendar year cannot be counted as employees for calculating the tax credit.
  • A small business may use the premium tax credit for 2014 even if they keep a plan from 2013 that was not purchased through SHOP.  They must, however, purchase through SHOP once their renewal comes up in 2014. 
  • Starting in 2014, this tax credit can only be taken for two consecutive years. 


There are well-designed premium tax credit calculators on many websites, such as MNsure’s:


And although we do not offer tax advice, professionals with the Minnesota Health Insurance Network can help you with the calculations and determine the best plan to tailor to your particular organization.  Fill out the information in this link and have a professional contact you.    /small.asp

Category: Small Employer - SHOP