The Small Business Health Care Tax Credit in 2026: Who Can Still Claim It
The credit pays up to half your premiums — for exactly two years, if you clear four conditions, one of which has quietly become unreachable in Kentucky. Here is the honest arithmetic.
What the credit is actually worth
The Small Business Health Care Tax Credit under Internal Revenue Code section 45R pays a for-profit employer up to 50 percent of the premiums it paid, and a tax-exempt employer up to 35 percent. That sounds enormous until you read the next sentence in the IRS guidance: the credit is available for two consecutive taxable years, and no more.
So it is a two-year subsidy on the front end of offering coverage, not an ongoing reduction in your benefits cost. That framing matters, because plenty of small employers pick a plan structure around the credit and then discover in year three that the arithmetic they built the budget on has expired.
The maximum goes to the smallest and lowest-paid employers — healthcare.gov notes the largest credit goes to employers with 10 or fewer full-time equivalent employees and average wages of $28,000 or less. Above that it tapers on both axes at once.
The four conditions
All four have to be true. The IRS states them as:
- Fewer than 25 full-time equivalent employees. FTEs, not headcount — part-time hours aggregate. Owners and certain family members are excluded from the count, which usually helps.
- Average annual wages below an inflation-indexed threshold. See below; this is where most employers fall out.
- The employer pays at least 50 percent of the cost of employee-only coverage — not family or dependent coverage — at a uniform percentage for each employee.
- The plan is a qualified health plan bought through a SHOP marketplace, or the employer qualifies for a limited exception.
Condition three is the one that gets confused with carrier participation rules, which often also land on 50 percent. Different requirement, same number. More on participation and contribution →
The wage threshold for 2026
$34,100
IRS Revenue Procedure 2025-32 sets the dollar amount in effect under section 45R(d)(3)(B) at $34,100 for taxable years beginning in 2026. The credit begins phasing out above that figure and phases out entirely at roughly twice it. healthcare.gov states the practical upper ceiling in rounder terms: average employee salary of “about $65,000 per year or less.”
Two numbers, one credit, and they get quoted interchangeably by people who should know better. Maryland's own materials illustrate the problem — the state's 2025–2026 employer guide says “under $65,000 (adjusted annually)” while a Maryland Business Express fact sheet says “less than $58,000.” Both are versions of the same indexed IRS figure at different vintages. The one to work from is the current Revenue Procedure.
Practically: a business paying an average of $34,100 or less gets the full credit rate. Between there and roughly $68,000 it tapers. Above that there is nothing, regardless of how few employees you have.
The SHOP problem, and why it is getting worse
Condition four is the one that has quietly broken. Enrolling through SHOP is, in healthcare.gov's words, “generally the only way for a small business or non-profit to claim the Small Business Health Care Tax Credit.” But SHOP has been dismantled almost everywhere.
On the federal marketplace there is no online SHOP enrolment any more. CMS gives employers two routes: through an insurance company directly, or with the assistance of a SHOP-registered agent or broker. SHOP still exists as a certification on a plan — CMS publishes a plan year 2026 SHOP dataset and a November 2025 employer guide — but the shopping portal is gone.
And in at least one state it has gone entirely.
Where you can still get it: four states
| State | SHOP status | Credit realistically available? |
|---|---|---|
| Maryland | State exchange, fully operating. Employer portal, three carriers, current employer guide. | Yes. The cleanest route of the four. |
| Florida | Federal SHOP: certification only, no portal. Buy through a carrier or a SHOP-registered broker. | Yes, if the plan is SHOP-certified and you have a broker who handles the filing. |
| Texas | Federal SHOP, same as Florida. | Yes, with the same caveat. |
| Kentucky | Closed. Anthem, the sole issuer, withdrew and KHBE states employers can no longer apply and enrol in SHOP coverage. | Not for a new purchaser. See the relief below. |
The Kentucky relief
IRS Notice 2018-27 covers exactly this situation: an employer that first claimed the credit for 2016 or a later year “may still claim the credit for all or part of the remainder of the two-year credit period, even if the employer has a principal business address in a county where QHPs are not available through the SHOP Marketplace.” The Kentucky exchange's own notice echoes it, saying tax credits may be available for businesses that had SHOP coverage in tax year 2025 or 2026.
If you are starting fresh in Kentucky, build your budget without the credit and treat it as upside if your accountant finds a route. More on buying group coverage in Kentucky →
Should the credit drive your decision?
Usually not, and it is worth being blunt about that.
Run the arithmetic on a real case. Eight employees, average wage $40,000, employer paying 50 percent of employee-only premiums. The wage figure is above $34,100, so the credit is already tapering. It lasts two years. And claiming it requires you to buy a SHOP-certified plan, which may not be the best plan available to you off-exchange.
That last point is the real cost. If the SHOP-certified plan is $60 a month per employee worse than the off-exchange alternative, an eight-person group gives up $5,760 a year to chase a credit that may be worth less than that and expires after twenty-four months.
Where the credit genuinely does change the answer
Very small, genuinely low-wage employers — under ten FTEs with average wages near or below $34,100 — in a state where the SHOP route is easy. A Maryland non-profit with eight staff on modest salaries is the textbook case, and there the credit is real money and worth structuring around.
One structural consequence: an ICHRA cannot qualify. You are reimbursing employees for individual coverage rather than buying a qualified health plan through SHOP. If the credit is worth serious money to you, that is a genuine argument for a group plan over an ICHRA. For most employers it is not the deciding factor. How the ICHRA comparison changed in 2026 →
Want to know if the credit is worth chasing for your business?
Send us your headcount, average wage and state. We will tell you what the credit is realistically worth, what the SHOP-certified plan costs against the off-exchange alternative, and whether the trade is worth making. Free.
Get group quotes →Frequently asked
Do owners count toward the 25 FTE limit?
Sole proprietors, partners, 2-percent S-corporation shareholders and certain family members are excluded from both the FTE count and the average wage calculation. That exclusion usually works in your favour on both tests.
Can I claim it for a year I already filed?
Amended returns are possible within the normal statute of limitations. Talk to your accountant — and note that using a year burns one of your two consecutive credit years.
Is the credit refundable?
For a tax-exempt employer, yes, limited to certain payroll taxes withheld and paid. For a for-profit employer it is a general business credit, so it offsets tax liability rather than generating a refund on its own, with carryback and carryforward rules.
Sources: IRS, Small Business Health Care Tax Credit · IRS Rev. Proc. 2025-32 · healthcare.gov, SHOP and the tax credit · CMS SHOP · Kentucky Health Benefit Exchange, SHOP · MHC for Small Business