Stop Overpaying: How Smart Small Business Owners Are Using Obamacare Tax Credits to Cut Group Insurance Premiums in 2025 -

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:

Fewer than 25 FTE Employees
Average Annual Wages ≤ $66,600 (for 2025)
Pay at Least 50% of Premiums for full-time employees
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

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.
Gather Documentation
- Total premiums paid
- Number of FTE employees and average wages
- Evidence you paid ≥50% of premiums
Complete IRS Form 8941
- Calculates your credit based on your numbers
- File alongside your business tax return
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

Feature	U.S. Small Biz Tax Credit	Canadian PHSP
Max Savings	50% of premiums (35% nonprofit)	100% deductible to employer
Eligibility	<25 FTE; ≤$66,600 avg wage	Any incorporated business (with rules)
Duration	2 consecutive years	Ongoing, as long as plan complies
Payroll Tax Savings	N/A	No CPP/EI on PHSP payments
Employee Tax Impact	No additional tax	Reimbursements are tax-free
Plan Requirement	Must use SHOP	Flexible HSA/flexible benefit plan

Steps to Maximize Your Savings

Review Employee Counts & Wages
- Keep accurate payroll records
Choose the Right SHOP or PHSP Provider
- Look for low admin fees and robust coverage
Time Your Enrollment
- Align SHOP open enrollment with your fiscal year
Document Everything
- Maintain proof of payments and offers of coverage
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: