Tax Credits

Your business could be eligible for a tax credit that’s only available through Covered California for Small Business.

With Covered California for Small Business (CCSB), you decide the level of coverage and provide employees with health insurance that fits your budget. Small businesses that purchase coverage through CCSB may be eligible to receive a federal tax credit to help offset the cost of providing health insurance.

The amount of credit you are eligible to receive works on a sliding scale. The smaller your business, or the lower your annual average wage, or both, the larger your credit will be.

Calculate Your Tax Credit

The maximum tax credit available is 50 percent of premium expenses as a for-profit employer. The maximum credit for tax-exempt employers is 35 percent. This credit applies to two consecutive tax years. Small businesses must purchase health insurance through CCSB to be eligible for the tax credits offered.

Your tax credit will depend on a number of factors such as:

  • Number of employees: The business must have less than 25 full-time equivalent employees (FTEs). Owners and immediate family members of the owner are not counted as employees when calculating the tax credit.
  • Average wage of employees: The employees must have an average annual wage of less than $54,000 per year. This limit has been adjusted for inflation since 2014.
  • Employer-paid premiums: The employer must contribute at least 50 percent of the cost of insurance coverage for each employee.

Example of a Small Business Receiving Tax credits for Health Insurance

Veterinary Office With 10 Full-Time-Equivalent Employees

Wages

$260,000 total, or an average of $26,000 per employee**

Employer Contribution for Health Insurance

$70,000 per year

Tax Credit (Year 1)

$35,000 (50%)

Tax Credit (Year 2)

$35,000 (50%)

Tax Credit (Year 3)

Not eligible for tax credit

For more details, see the Internal Revenue Service (IRS): irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace

Do you have questions? Call your Broker and / or Tax Professional or contact CCSB at 1-844-332-8384 or SmallBusiness@covered.ca.gov

*Not all businesses will qualify. To verify that your small business is eligible for a federal tax credit, please consult a professional tax adviser. The credit only applies for two consecutive tax years based on premiums paid for employees.

**Federal tax credit income limits are adjusted annually as updated IRS publications for the prior tax year become available in the first quarter of the proceeding calendar year. For example, the 2019 tax income limit will not become available until early 2020. Please refer to Form 8941: Credit for Small Employer Health Insurance Premiums for the most current information