Cook & Associates > Groups > Small Group > Tax Benefits for Small Employers

Small Group Tax Credit


In an effort to help small employers offer affordable coverage to their employees, the Patient Protection and Affordable Care Act provides for tax credits for qualified small employers. These credits begin in 2010. The credits increase in 2014, but are only available for coverage purchased on an Exchange. The small group tax credit sunsets in 2016.

The information below in intended to provide a high level overview of the tax credit, but is not meant to cover all circumstances and nuances. Please refer to your legal advisor for counsel in applying for the credit.


Fewer than 25 full time equivalent employees (FTEs) for the taxable year

Average annual wages of employees for the year are less than $50,000 per FTE

Employer must maintain health insurance coverage in which the employer pays a uniform percentage of changes not less than 50% of the cost of coverage offered

See IRS guidelines for tax-exempt eligibility definition

Other Eligibility Considerations

Employees who perform services for the employer during the taxable year are included in determining FTEs, wages and premiums paid

Not considered in determining FTEs, wages and premiums are:

  • Sole proprietors
  • Partners in a partnership owning more than 5% of a business
  • Shareholders owning more than 2% stock in an S corporation
  • Owners of more than 5% of other businesses
  • Employee/Spouse of owners and partners defined above
  • Family members of owners and partners defined above

Employees Taken Into Account: All employees of the employer during the year are taken into account in computing FTE and annual average wage

Includes: Former employees who termed employment during the year, employees covered under a collective bargaining agreement, employees who do not enroll in their employer’s health insurance plan, regardless of whether or not they are covered under another health insurance plan

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