Instructions for Form 8941, Credit for Small Employer Health Insurance Premiums

• Legal Form Number: 8941
• Year: 2023
• Issuer: Treasury Department
• Section: Treasury Department

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2023

Instructions for Form 8941

Credit for Small Employer Health Insurance Premiums

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code

unless otherwise noted.

Future Developments

For the latest information about developments related to

Form 8941 and its instructions, such as legislation

enacted after they were published, go to IRS.gov/

Form8941.

Reminder

Waiver for Hawaii. Employers in Hawaii can’t claim this

credit for insurance premiums paid for health plan years

beginning after 2016. For more information, see Waiver for

Hawaii in the instructions for line A.

General Instructions

Purpose of Form

Eligible small employers (defined later) use Form 8941 to

figure the credit for small employer health insurance

premiums for tax years beginning after 2009. For tax years

beginning after 2013, the credit is only available for a

2-consecutive-tax-year credit period. The maximum credit

is generally a percentage of premiums the employer paid

during the tax year for certain health insurance coverage

the employer provided to certain employees enrolled in a

qualified health plan offered through a Small Business

Health Options Program (SHOP) Marketplace. But the

credit may be reduced by limitations based on the

employer’s full-time equivalent employees, average

annual wages, adjusted average premiums, and state

premium subsidies and tax credits.

For information about insurance plans offered

through a SHOP Marketplace, go to

Healthcare.gov.

For tax-exempt eligible small employers, the

maximum credit is 35% of premiums paid, is limited to the

amount of certain payroll taxes paid, and is claimed as a

refundable credit on Form 990-T, Exempt Organization

Business Income Tax Return. A tax-exempt eligible small

employer is an eligible small employer described in

section 501(c) that is exempt from taxation under section

501(a). A tax-exempt employer not described in section

501(c) is generally not eligible to claim this credit.

However, a tax-exempt farmers’ cooperative subject to tax

under section 1381 may be able to claim the credit as a

general business credit, as discussed next.

For all other eligible small employers, the maximum

credit is 50% of premiums paid and can be taken against

both regular and alternative minimum tax. The credit is

claimed as part of the general business credit on Form

3800, General Business Credit.

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Partnerships, S corporations, cooperatives,

estates, trusts, and tax-exempt eligible small

employers must file this form to claim the credit.

All other taxpayers must not complete or file this form if

their only source for this credit is a partnership, S

corporation, cooperative, estate, or trust. Instead, they

must report this credit directly on line 4h in Part III of Form

3800, General Business Credit.

Eligible Small Employers

You’re an eligible small employer for the tax year if you

meet the following three requirements.

1. You paid premiums for employee health insurance

coverage under a qualifying arrangement. A

qualifying arrangement is generally an arrangement that

requires you to pay a uniform percentage (not less than

50%) of the premium cost for each enrolled employee’s

health insurance coverage (defined later). However, an

arrangement that requires you to pay a uniform premium

for each enrolled employee (composite billing) and offers

different tiers of coverage (for example, employee-only,

dependent, and family coverage) can be a qualifying

arrangement even if it requires you to pay a uniform

percentage that is less than 50% of the premium cost for

employees not enrolled in employee-only coverage.

In addition, an arrangement that requires you to pay a

separate premium for each employee based on age or

other factors (list billing) can be a qualifying arrangement

even if it requires you to pay a uniform percentage that is

less than 50% of the premium cost for some employees.

For details, see Employer Premiums Paid, Health

Insurance Coverage, and Qualifying Arrangement, later.

2. You had fewer than 25 full-time equivalent employ-

ees (FTEs) for the tax year. You may be able to meet

this requirement even if you had 25 or more employees.

For example, an employer with 48 employees who are

each half-time employees has 24 FTEs and can claim the

credit. For details, see Worksheets 1 and 2.

Although the term “eligible small employer” is

defined in the Internal Revenue Code to include

employers with “no more than” 25 FTEs, the

phaseout of the credit amount operates in such a way that

an employer with exactly 25 FTEs is not, in fact, eligible for

the credit.

3. You paid average annual wages for the tax year of

less than $62,000 per FTE. For details, see Worksheets

1 and 3.

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CAUTION

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If you had more than 10 FTEs and average annual

wages of more than $30,000, the FTE and

average annual wage limitations (discussed later)

will separately reduce your credit. This may reduce your

credit to zero even if you had fewer than 25 FTEs and

average annual wages of less than $62,000.

Employers treated as a single employer. Treat the

following employers as a single employer to figure the

credit.

•Employers who are corporations in a controlled group of

corporations.

•Employers who are members of an affiliated service

group.

•Employers who are partnerships, proprietorships, etc.,

under common control. See Regulations sections

1.414(c)-2, 1.414(c)-3, and 1.414(c)-4.

•Tax-exempt employers under common control. See

Regulations section 1.414(c)-5.

For details, see section 45R(e)(5)(A) and Regulations

section 1.45R-2(b).

No more than one Form 8941 can be filed with a

tax return, unless the exception described in

Example 2 below applies.

Example 1. You’re a sole proprietor with two separate

businesses and you file a separate Schedule C (Form

1040), Profit or Loss From Business, for each business.

You must treat both businesses as a single employer to

figure the credit. You will file one Form 8941 for both

businesses.

Example 2. You and your spouse are both sole

proprietors and file a separate Schedule C (Form 1040)

for each of your separate businesses. Neither spouse was

an employee of the other spouse or participated in the

management of the other spouse’s business at any time

during the tax year. No more than 50% of the gross

income of either business was derived from royalties,

rents, dividends, interest, and annuities and you otherwise

meet the requirements listed in Regulations section

1.414(c)-4(b)(5)(ii). Don’t treat both businesses as a

single employer to figure the credit. If you and your spouse

are both eligible small employers, you can file two Forms

8941 with a jointly filed Form 1040 or 1040-SR.

Credit Period

For tax years beginning after 2013, the credit period

during which the credit can be claimed is a

2-consecutive-tax-year period beginning with the first tax

year in which:

•An eligible small employer (or any predecessor) files an

income tax return with an attached Form 8941 with line A

checked “Yes” and a positive amount on line 12, or

•A tax-exempt eligible small employer (or any

predecessor) files Form 990-T with an attached Form

8941 with line A checked “Yes” and a positive amount on

line 12.

Employer Premiums Paid

Only premiums you paid for health insurance coverage

under a qualifying arrangement (discussed later) for

individuals considered employees are counted when

figuring your credit.

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State premium subsidy or tax credit. If you’re entitled

to a state tax credit or a state premium subsidy paid

directly to you for premiums you paid, don’t reduce the

amount you paid by the credit or subsidy amount. Also, if a

state pays a premium subsidy directly to your insurance

provider, treat the subsidy amount as an amount you paid

for employee health insurance coverage.

Wellness programs. A wellness program is generally an

insurance program of health promotion or disease

prevention. If you pay part or all of the cost of an

employee’s participation in a wellness program, treat the

amount you paid toward the employee’s participation as

an amount you paid for employee health insurance

coverage.

Tobacco surcharges. A tobacco surcharge is generally

an additional amount charged for insurance for a tobacco

user. If you pay part or all of an employee’s tobacco

surcharge, you can’t use the amount you paid to figure

your employer premiums paid.

Dependent coverage. Dependent coverage is generally

coverage offered separately to an individual who is or may

become eligible for coverage under the terms of a group

health plan because of a relationship to a

participant-employee, whether or not a dependent of the

participant-employee. Dependent coverage doesn’t

include coverage, such as family coverage, which

includes coverage of the participant-employee. If you pay

part or all of the cost of an employee’s dependent

coverage, use the amount you paid to figure your

employer premiums paid.

Portion of premiums paid. If you pay only a portion of

the premiums and your employees pay the rest, only the

portion you pay is taken into account. For this purpose,

any premium paid through a salary reduction arrangement

under a section 125 cafeteria plan isn’t treated as an

employer paid premium. For more information on cafeteria

plans, see section 1 of Pub. 15-B, Employer’s Tax Guide to

Fringe Benefits.

Example 3. You offer health insurance coverage to

employees under a qualifying arrangement that requires

you to pay 60% of the premium cost for employee-only

coverage for each employee enrolled in any health

insurance coverage you provide to employees. The total

premium for each employee enrolled in employee-only

coverage is $5,200 per year or $100 ($5,200 ÷ 52) for

each weekly payday. The total premium for each

employee enrolled in family coverage is $13,000 per year

or $250 ($13,000 ÷ 52) for each weekly payday.

Each payday, you contribute $60 (60% of $100) toward

the premium cost of each employee enrolled in

employee-only coverage and withhold the remaining $40

from the employee's paycheck to obtain the $100 total

weekly premium. Each payday, you contribute $60 (the

same amount you pay toward the premiums of employees

enrolled in employee-only coverage) toward the premium

cost of each employee enrolled in family coverage and

withhold the remaining $190 from the employee’s

paycheck to obtain the $250 total weekly premium.

To determine the premiums you paid during the tax

year, multiply the number of pay periods during which the

-2- Instructions for Form 8941 (2023)