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Small Business Health Care Tax Credit in Michigan: Who Qualifies (2027)
The federal Small Business Health Care Tax Credit can give eligible small employers back a share of what they spend on employee premiums. It's often missed because the rules are specific. Here's what to check before you ask your accountant.
The basic rules
- Fewer than 25 full-time-equivalent employees.
- Average annual wages below a limit that the IRS adjusts every year. Lower average wages mean a bigger credit.
- You pay at least 50% of the cost of employee-only coverage.
- You buy through the SHOP (Small Business Health Options Program). Coverage outside SHOP doesn't qualify for the credit. In many states, including those on HealthCare.gov, you enroll in SHOP through an agent or broker or directly with an insurer, not through an online application.
How much is it worth?
The credit can be up to 50% of the premiums you pay (up to 35% for tax-exempt employers). It's available for two consecutive years, and the percentage phases down as your headcount and average wages go up. You claim it on IRS Form 8941 with your business tax return, and it's non-refundable for most for-profit businesses, so it reduces tax owed rather than paying you back.
Who doesn't count as an employee
For the credit, owners are excluded from the employee headcount and wage calculation. That includes sole proprietors, partners, 2% S corporation shareholders, and certain family members. If your business is just you and your spouse, it likely won't qualify. See health insurance for small business owners for other routes.
Michigan: what to check
Michigan Department of Insurance and Financial Services (DIFS) can tell you how SHOP works in Michigan.
The numbers change each year, so confirm current wage limits in the IRS instructions for Form 8941 or ask your tax professional. For options beyond the credit, read self-funded, level-funded and allowance-style plans.
Tell us about your business and we'll point you to the right plan type.
Frequently asked questions
How many employees can a business have to get the small business health care tax credit?
Fewer than 25 full-time-equivalent employees, with average wages below an amount the IRS adjusts each year.
Do I have to use SHOP to claim the credit?
Yes. The credit applies to coverage bought through the Small Business Health Options Program.
Can a sole proprietor claim the credit?
No. Owners, partners and certain relatives don't count as employees for the credit. A business needs qualifying employees.