Employer resource / Compliance
Small-business health care tax credit: check eligibility first.
Size and wages are only part of the test. Coverage requirements and the limited credit period can determine whether an otherwise small employer qualifies.
Quick answer
Do not assume a Washington small-group plan qualifies for the federal credit. Ask your tax adviser to confirm the coverage route or a specific exception before including a credit in the benefits budget.
2026 thresholds and conditions
| Requirement | What to verify |
|---|---|
| Employee count | Fewer than 25 FTEs under the tax-credit rules, which differ from the ACA ALE calculation. Headcount phaseout starts above 10 FTEs. |
| Average annual wages | For tax years beginning in 2026, wage phaseout begins above $34,100 and reaches zero at $68,200. Both wage and employee-count reductions can apply. |
| Employer contribution | Generally at least 50% of employee-only premiums under a qualifying arrangement. |
| Maximum credit | Up to 50% for eligible taxable employers; up to 35% for eligible tax-exempt employers, subject to additional limits. |
| Credit period | Generally limited to two consecutive taxable years. |
| Coverage | SHOP-qualified coverage is generally required unless a specific exception applies. |
The Washington coverage issue
Washington OIC’s 2026 Mandated Benefits Report states that Washington does not operate a SHOP. Buying a small-group plan through a broker does not by itself satisfy the federal SHOP requirement. IRS Notice 2018-27 provides limited relief for certain employers continuing the remainder of an already-started credit period after SHOP coverage becomes unavailable; it is not a general exemption for every new applicant in a no-SHOP area.
Give your CPA the right inputs
- Ownership and related-entity information, plus employee hours and wages.
- Employer-paid premiums and employee contribution arrangements.
- The proposed or existing coverage and whether it meets the SHOP requirement or a specific exception.
- Any prior years in which the credit was claimed.
Tax-credit FTE rules, excluded owners or relatives, wage calculations, and premium limits require review under the IRS instructions. Do not substitute the 120-hour ALE formula for this credit’s calculation.
Keep the plan decision useful
Compare the plan’s cost and coverage without assuming a tax credit. WIB can provide benefits information and connect specialist resources. Eligibility and the tax return belong with your CPA or tax preparer; WIB does not provide tax advice.
Sources checked September 19, 2026. General information; your plan and circumstances matter.
IRS · creditIRS · 2026IRS · 8941IRS · SHOP · reliefOIC · SHOPTalk through the next step.
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