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What Is Form 8941? It’s a Tax Credit for Small Business Health Insurance Costs

Small businesses use tax form 8941 in order to claim a tax credit for the health insurance premiums they pay for their employees. To qualify, the business must have fewer than 25 employees with average annual wages not in excess of $55,000k. The credit is a maximum of 50% of premiums paid, or for tax-exempt employers, a maximum of 35%.

Here’s What We’ll Cover:

Will Form 8941 Reduce My Taxes?

Where Can I Find Form 8941?

Do I Need to Fill out Form 8941 and Form 3800?

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

Will Form 8941 Reduce My Taxes?

Form 8941 can reduce a small business owner’s tax liability by providing a credit for the costs associated with health insurance coverage that an employer has provided to his employees. This credit exists to provide an incentive to small businesses to provide such coverage.

Here are the requirements to qualify for the credit:

  • The small business has paid at least 50% of each employee’s insurance premium costs.
  • The company has fewer than 25 employees or equivalent (equivalent means there can be 25 or more, as long as the hours don’t exceed that of 25 full time employees).
  • The average annual wage of all full time employees is less than $55,000.

The credit for a small business is a maximum of 50% of premiums paid, or for tax-exempt employers, a maximum of 35%. If you have more than 10 full time employees who earn average annual wages of more than $27,000, your credit will be reduced.  .

The IRS will also consider small businesses that pay a “uniform premium” with multiple tiers of health insurance coverage, for the credit, even if that means the employer paid less than 50%. Uniform premiums (also known as “Composite Billing”) are for insurance plans that do not consider age, gender, and occupation when providing coverage. For more on tax credits for employer health insurance premiums, check out Instructions for Form 8941 on the IRS’s website.

The tax credit can only be claimed for two consecutive years.

Where Can I Find Form 8941?

Form 8941 for the 2018 tax year can be found here.

Do I Need to Fill out Form 8941 and Form 3800?

Form 3800 is a summary of all the tax credits a business is claiming when filing its income taxes. If a business fills out form 8941 for a tax credit for small employer health insurance premiums, then it is also required to include that information on form 3800.

Other credits that require this form to be filed include:

  • Alternative motor vehicle credit
  • Biodiesel and renewable diesel fuel credit
  • Differential wage payments credit
  • Disabled access credit
  • Distilled spirits credit
  • Employer provided childcare facilities and services credit
  • Empowerment zone and renewal community employment credit
  • Increased research activities credit
  • Indian employment credit
  • Low income housing credit
  • Mine rescue team training credit
  • New markets credit
  • Non-conventional source fuel credit
  • Pension plan startup costs credit
  • Plug-in electric drive vehicle credit
  • Plug-in electric drive motor vehicle credit
  • Renewable energy, alternative fuels and non-conventional fuels credit
  • Social Security and Medicare taxes (paid on Employee tips) credit
  • Work opportunity credit

A full list of credits can be found on Form 3800 on the IRS website.





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