Yes. A Pennsylvania small business can still qualify for the Small Business Health Care Tax Credit in 2026 if it meets the federal requirements. In general, the business must have fewer than 25 full-time equivalent employees, meet the average-wage limits, pay at least 50% of the cost of employee-only health coverage under a qualifying arrangement, and generally offer qualifying SHOP coverage. The maximum credit is 50% of qualifying premiums for taxable small businesses and 35% for eligible tax-exempt organizations.
Who Is the Small Business Health Care Tax Credit Designed For?
The credit is designed for smaller employers that help pay for employee health insurance. Businesses with fewer employees and lower average wages can receive a larger credit, while the amount gradually decreases as FTE count and average wages increase.
For tax years beginning in 2026, the inflation-adjusted wage amount used in the credit calculation is $34,100 per FTE. The wage-based portion of the credit begins phasing down above that level and is fully phased out at higher average wages.
Meeting the basic eligibility rules also does not mean a business automatically receives the maximum 50% or 35% credit. The final amount depends on the employer’s actual workforce, wages, premiums, and other limitations.
What Does Full-Time Equivalent Mean?
The employee limit is based on full-time equivalent employees, or FTEs, rather than simple headcount. Part-time employee hours are combined when calculating the employer’s FTE total.
For example, an employer can have more than 25 individual workers and still have fewer than 25 FTEs because some employees work part time. IRS guidance gives an example of 48 half-time workers equaling 24 FTEs.
That is why employers should calculate FTEs using the applicable IRS rules rather than simply counting everyone on payroll.
Does a Pennsylvania Business Need SHOP Coverage?
Generally, yes. SHOP stands for the Small Business Health Options Program.
For tax years beginning after 2013, qualifying health coverage generally must be provided through a SHOP Marketplace or an applicable direct-enrollment process. Limited exceptions may apply when qualifying SHOP coverage is unavailable.
Offering another small-group health plan does not automatically make the business eligible for the tax credit. Employers should confirm how their current health plan was obtained before assuming it qualifies.
How Much Is the Small Business Health Care Tax Credit Worth?
Eligible taxable small businesses may qualify for a credit of up to 50% of qualifying employer-paid premiums. Eligible tax-exempt organizations may qualify for up to 35%.
The employer generally must pay at least 50% of the cost of employee-only coverage, not 50% of family or dependent coverage, under a qualifying contribution arrangement.
The maximum percentage is not guaranteed. The credit decreases as the number of FTEs and average employee wages increase, so a tax professional should calculate the final amount using the business’s actual information.
Can My Business Claim the Credit Again in 2026?
Possibly. For tax years beginning after 2013, the Small Business Health Care Tax Credit is generally available for a two-consecutive-tax-year credit period.
For example, if your company already claimed the credit for 2024 and 2025 as its two consecutive qualifying years, do not assume another credit is available for 2026.
Review prior tax filings with your accountant or tax adviser before including the credit in your 2026 benefits or tax planning.
How Do Part-Time and Seasonal Employees Affect the Credit?
Part-time employees can affect eligibility because their hours are combined when calculating FTEs.
Seasonal employees can be treated differently. Under the IRS rules used for this credit, seasonal employees who work 120 days or fewer during the tax year generally are not included in the FTE and average-wage calculations.
Businesses with a large number of part-time or seasonal workers should therefore review actual employee hours rather than estimating eligibility based on total headcount.
Do Business Owners and Family Members Count as Employees?
Not always. Certain owners and their family members are generally excluded when calculating FTEs, average annual wages, and qualifying premiums for this credit.
The rules can apply differently to sole proprietors, partners, certain shareholders, and related family members. Employers with working owners or family members on payroll should have a tax professional confirm who should be included before calculating eligibility.
What Should Pennsylvania Small Businesses Review for 2026?
Start with the information you already have. Review employee hours, payroll records, average wages, employer premium contributions, health plan documents, how the coverage was obtained, and any previous years in which the business claimed the credit.
The benefits side matters because the employer’s health coverage and contribution arrangement are part of the eligibility analysis. A benefits consultant can help review the employee health coverage and plan structure, while an accountant or tax adviser should make the final tax-credit determination.
If the business appears eligible, IRS Form 8941, Credit for Small Employer Health Insurance Premiums, is used to calculate the credit.
What Do Small Employers Ask About the Health Care Tax Credit?
In general, qualifying employers must have fewer than 25 FTEs, meet the applicable average-wage limits, contribute at least 50% toward qualifying employee-only health coverage, and generally provide coverage through SHOP. The credit becomes smaller as FTE count and average wages increase.
Possibly. Eligibility is based on full-time equivalent employees rather than total headcount. A company with more than 25 individual workers may still have fewer than 25 FTEs when part-time hours are combined.
Generally, qualifying coverage must be offered through a SHOP Marketplace or an applicable SHOP direct-enrollment process. Limited exceptions may apply when qualifying SHOP coverage is unavailable, so employers should confirm the current rules for their situation.
The maximum credit is generally 50% of qualifying premiums paid by an eligible taxable small employer and 35% for an eligible tax-exempt organization. The actual credit can be lower based on the employer’s FTE count, average wages, premium costs, and other limitations.
Eligible employers use IRS Form 8941 to calculate the credit. A tax professional should confirm eligibility, calculate the allowable amount, and determine how the credit should be reported on the employer’s federal tax return.
Need Help Reviewing Your Small Business Health Coverage?
If you are reviewing health coverage for 2026, JS Benefits Group can help you look at your current health plan, employer contribution structure, and coverage setup before your accountant handles the tax-credit calculation.
The goal is to make sure the benefits information is organized and clear so your tax professional has the plan details needed to evaluate eligibility.
Contact JS Benefits Group to speak with a benefits consultant about your Pennsylvania small business health coverage and what may need to be reviewed for 2026.
