Introduction

Small business owners are all too familiar with the stress of rising healthcare costs. Group insurance premiums continue to climb, eating into budgets and forcing difficult trade-offs between employee benefits and other critical expenses. But here’s the good news: under the Affordable Care Act (ACA), also known as “Obamacare,” there’s a little-known tax credit that can slash up to 50% of what you pay in group insurance premiums. In 2025, savvy entrepreneurs are leveraging these credits to stop overpaying and invest those savings back into their businesses.

In this post, we’ll explore:

• What Obamacare Tax Credits Are
• Who Qualifies and How Much You Can Save
• Step-by-Step Guide to Claiming the Credit
• Canada’s Alternative: Health Spending Accounts
• A Comparison Table
• Expert Tips to Maximize Your Savings

By the end, you’ll have a clear roadmap to cut your group insurance premiums dramatically—whether you’re based in the U.S. or running operations in Canada.

What Are Obamacare Tax Credits?

Obamacare includes a provision called the Small Business Health Care Tax Credit, designed to help businesses with fewer than 25 full-time equivalent (FTE) employees afford group health coverage. If you pay at least half of your employees’ premiums through a SHOP (Small Business Health Options Program) plan, you may qualify for:

• Up to 50% of premium costs for for-profit employers
• Up to 35% for tax-exempt organizations

These credits are available for two consecutive tax years and can be claimed on IRS Form 8941 when you file your business return (IRS).

Eligibility Criteria for Small Business Health Care Tax Credit

To qualify in 2025, your business must meet all of the following requirements:

1. Fewer than 25 FTE Employees
2. Average Annual Wages ≤ $66,600 (for 2025)
3. Pay at Least 50% of Premiums for full-time employees
4. Offer SHOP Coverage to all full-time staff

For non-profit entities, the rules are identical except the maximum credit is 35% instead of 50% (HealthCare.gov).

How to Claim Obamacare Tax Credits in 2025

1. Enroll in a SHOP Plan
   • SHOP plans are generally the only way to qualify.
   • Compare offerings at HealthCare.gov’s SHOP page to find the best fit.
2. Gather Documentation
   • Total premiums paid
   • Number of FTE employees and average wages
   • Evidence you paid ≥50% of premiums
3. Complete IRS Form 8941
   • Calculates your credit based on your numbers
   • File alongside your business tax return
4. Carry Forward Unused Credits
   • If you owe less than your maximum credit, you can carry unused amounts forward to the next tax year

Benefits of Obamacare Tax Credits for Small Business Owners

• Immediate Cash Flow Relief
• Enhanced Recruitment & Retention
• Two-Year Window (claim for two consecutive years)
• Scalable Savings (credit is larger for smaller businesses)

Imagine cutting your $50,000 annual premium bill in half—that’s $25,000 you can reinvest in marketing, hiring, or new equipment.

Canada’s Alternative: Health Spending Accounts (HSAs)

While Canada doesn’t have an “Obamacare,” small businesses here can still gain significant tax advantages through Private Health Services Plans (PHSPs), also known as Health Spending Accounts. Under a PHSP:

• Contributions are 100% tax-deductible
• Reimbursements to employees are tax-free
• No payroll taxes (CPP/EI) on PHSP payments

Most incorporated Canadian businesses—from a Vancouver startup to a Halifax bakery—use PHSPs to offer flexible, tax-efficient health benefits (taxtips.ca).

Comparison: U.S. Tax Credits vs. Canada’s PHSP

Steps to Maximize Your Savings

1. Review Employee Counts & Wages
   • Keep accurate payroll records
2. Choose the Right SHOP or PHSP Provider
   • Look for low admin fees and robust coverage
3. Time Your Enrollment
   • Align SHOP open enrollment with your fiscal year
4. Document Everything
   • Maintain proof of payments and offers of coverage
5. Consult with a Tax Advisor
   • Small nuances (like seasonal workers) can affect eligibility

Common Mistakes to Avoid

• Missing Deadlines: SHOP enrollment windows and corporate tax filing dates
• Underpaying Premiums: Must cover ≥50% to qualify
• Overlooking Carry-Forwards: You can’t reclaim unused credit from year one in year three
• Ignoring Canadian Rules: Unincorporated owners cannot use PHSPs without arms-length employees

Conclusion

Healthcare premiums don’t have to be a profit-eating burden. By leveraging Obamacare’s Small Business Health Care Tax Credit up to 50% in the U.S., or utilizing PHSPs in Canada, smart entrepreneurs are reclaiming thousands of dollars each year.

Don’t let rising insurance costs hold you back—take action today:

• U.S. Owners: Enroll in a SHOP plan and file IRS Form 8941.
• Canadian Owners: Set up a compliant PHSP through a trusted provider.

Stop overpaying and start reinvesting those savings back into your business’s growth and success!

References:

• Small Business Health Care Tax Credit | HealthCare.gov (HealthCare.gov)
• Private Health Services Plans (PHSP) Guide | TaxTips.ca (taxtips.ca)