The Small Business Health Care Tax Credit for Kansas Employers

The Small Business Health Care Tax Credit pays back part of what a small employer spends on employee health premiums. For the right Kansas business, that can mean a refund of up to half its share of premiums for two years. The catch is a short list of rules, and most of them trip people up on the details.

Here is how the credit works and who qualifies. First, though, the Kansas catch.

What the credit is worth

The IRS sets the maximum credit at:

• 50% of premiums paid for small business employers.
• 35% of premiums paid for small tax-exempt employers, such as nonprofits.

The credit works on a sliding scale. The smaller the employer and the lower the average wage, the bigger the credit. It is claimed for two consecutive taxable years, starting with the first year you claim it.

HealthCare.gov gives a simple scenario. A business with 10 employees pays $250,000 in total wages, or $25,000 each, and contributes $70,000 toward employee premiums. Its credit is $35,000, which is 50% of the employer contribution. A business with higher wages or more FTEs would see a smaller share.

You can still deduct the premiums you pay above the credit amount as a business expense. If you do not owe tax this year, the IRS says a small business can carry the credit back or forward. For tax-exempt employers the credit is refundable, up to the organization's income tax withholding and Medicare tax liability.

Who qualifies

The IRS lists four tests. You must:

1. Have fewer than 25 full-time equivalent (FTE) employees.
2. Pay average annual wages below an inflation-adjusted limit.
3. Offer a qualified health plan through a Small Business Health Options Program (SHOP) Marketplace, unless a narrow exception applies.
4. Pay at least 50% of the cost of employee-only coverage for each employee enrolled.

The wage limit. For tax year 2025, the Form 8941 instructions say average annual wages must be less than $67,000 per FTE. The credit starts shrinking once average wages pass $33,000, and it shrinks further when you have more than 10 FTEs.

For tax year 2026, IRS Rev. Proc. 2025-32 sets the base dollar amount used for the credit at $34,100. Under Section 45R, the eligibility ceiling is tied to twice that base. The IRS publishes the exact 2026 ceiling in the 2026 Form 8941 instructions, and we check that figure with your tax preparer before you count on the credit.

How FTEs and wages are counted

The FTE count for this credit is not the same as other ACA counts. The IRS rules:

• One FTE generally equals 2,080 hours a year. Two half-time workers count as one FTE.
• Hours above 2,080 for any one employee do not count.
• Seasonal workers who work 120 or fewer days a year are left out of the FTE and wage counts, though premiums you pay for them can still count toward the credit.
• Owners are left out. That includes sole proprietors, partners, shareholders owning more than 2% of an S corporation, owners of more than 5% of the business, and their family members.

Average annual wages equal total wages divided by FTEs. The IRS example: $200,000 in wages for 10 FTEs is a $20,000 average.

That owner rule matters for a lot of Kansas family businesses. A farm operation in Finney County or a family restaurant in Salina may have owners and relatives on payroll who do not count as employees for this credit, and whose premiums do not count either.

The 50% contribution rule

The IRS calls this the qualifying arrangement. You must pay a uniform percentage, not less than 50%, of the premium for each enrolled employee's coverage. The rule applies to employee-only coverage. You do not have to pay 50% toward dependent coverage to qualify, though premiums you do pay for dependents count toward the credit.

The Form 8941 instructions add a few details. Tobacco surcharges do not count toward the uniform percentage. Wellness program discounts are set aside when checking it. Composite and list billing each have their own rules for meeting the test.

The credit can also be capped by the average small group premium for your rating area. The IRS publishes those averages by state and county. For Kansas, that ties back to the seven Kansas rating areas.

Buying SHOP coverage in Kansas

HealthCare.gov says enrolling in a SHOP plan is generally the only way to claim this credit. To use SHOP, your business generally needs 1 to 50 full-time equivalent employees, including at least one who is not an owner, partner, or owner's spouse or family member.

Kansas employers do not apply for SHOP through a HealthCare.gov account. Per HealthCare.gov, you either:

• Work with a SHOP-registered agent or broker, or
• Contact a carrier that offers SHOP plans in your area and enroll with them.

Either way, you complete the SHOP Eligibility Determination Form to confirm your business qualifies. You can generally enroll in SHOP year-round. A stand-alone SHOP dental plan also counts as a qualified health plan for the credit.

For Kansas this is the step that decides everything: whether SHOP plans are sold in your county at all. The 2026 CMS filings show no Kansas small group plan marked for SHOP. The 2025 Form 8941 instructions note that some counties nationwide had no SHOP plans. Relief for 2025 applies only to employers in those counties that properly claimed the credit for 2024. HealthCare.gov's small business plans and prices tool shows what is offered by county. Before you build a plan around this credit, we confirm which SHOP plans are available for your Kansas address.

Claiming it on your return

You figure the credit on Form 8941, Credit for Small Employer Health Insurance Premiums.

• Small businesses include it as part of the general business credit on Form 3800.
• Tax-exempt employers claim it on Form 990-T, even if they do not normally file one.
• If you missed it, the IRS says you may be able to file an amended return, subject to refund time limits.

Keep good records through both credit years. Your tax preparer will want the premium invoices, the contribution percentage for each coverage tier, the hours worked by each employee, and a list of owners and family members left out of the count.

Your CPA handles the return. We handle the plan side: confirming whether a SHOP plan exists for your county, setting a contribution that meets the 50% rule, and giving your tax preparer the premium records they need.

Is the credit worth chasing?

Only if SHOP coverage is available to you, and then it depends on your payroll. If it is, a five-person Lawrence office with modest wages could see a meaningful credit for two years. A 20-person engineering firm in Overland Park with higher wages may get little or nothing once the phase-outs apply.

Also weigh the tradeoffs. SHOP limits you to the plans carriers sell through SHOP in your area. A QSEHRA rules out the credit, since QSEHRA employers cannot offer a group plan. And the credit lasts only two years, so price the plan on what it costs in year three. Our cost guide and requirements guide help with that math.

If SHOP is not an option where you are, the regular small group market or an ICHRA is usually the better path. Want us to check SHOP availability for your county and model a 50% contribution? Send a census through our quote page.