Credit for Small Employer Health Insurance Premiums
Small business tax credits are one of the most powerful ways to reduce your tax liability in 2025. While tax deductions lower your taxable income, tax credits provide a dollar-for-dollar reduction, putting money directly back into your business. Running a small business involves juggling countless responsibilities, and navigating the complexities of taxes can be one of the most daunting. While tax deductions lower your taxable income, tax credits are even more valuable. They provide a dollar-for-dollar reduction of your final tax liability, putting money directly back into your business.
Understanding which business tax credits you’re eligible for can significantly impact your bottom line. These credits are designed to reward businesses for certain activities, such as hiring specific groups of workers, offering employee benefits, or investing in research. Taking advantage of them can free up capital, fuel growth, and provide a competitive edge.
This guide will walk you through the top 10 small business tax credits available in 2025. We’ll explore what they are, who qualifies, and how you can claim them to reduce your tax bill.
Top 10 Small Business Tax Credits for 2025
Here’s a look at some of the most impactful tax credits that could benefit your small business this tax year.
1. Credit for Small Employer Health Insurance Premiums
This credit helps small businesses afford the cost of providing health coverage to their employees. If you pay at least half of the premium costs for your employees, you might be eligible. To qualify, you must have fewer than 25 full-time equivalent employees, pay average annual wages below a certain threshold (which is adjusted for inflation), and purchase coverage through the Small Business Health Options Program (SHOP) Marketplace.
2. Credit for Employer-Provided Childcare Facilities and Services
If you help your employees with childcare expenses, you could earn a valuable credit. The care tax credit is worth 25% of qualified expenses you pay for employee childcare and 10% of qualified expenses for childcare resource and referral services. This can include costs for building or running a childcare facility for your employees.
3. Paid Family and Medical Leave Credit
This credit encourages businesses to offer paid leave to employees for qualifying family and medical reasons. If you provide at least two weeks of paid family and medical leave annually to your full-time employees (pro-rated for part-time staff), you could claim a credit. The credit amount ranges from 12.5% to 25% of the wages paid to qualifying employees while they’re on leave.
4. Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit is a federal credit available to employers who hire and retain individuals from certain targeted groups facing significant barriers to employment. This includes veterans, ex-felons, and individuals receiving certain government assistance. The credit amount varies depending on the employee hired and the number of hours they work.
5. Retirement Plans Startup Costs Tax Credit
Starting a retirement plan for your employees can be costly, but this credit helps offset those expenses. The small employer pension plan startup credit is designed to cover the ordinary and necessary costs of setting up a new plan. For businesses with 50 or fewer employees, the credit is 100% of the pension plan startup cost, up to a maximum of $5,000 per year for three years. This makes offering a 401(k) or SIMPLE IRA plan much more accessible.
6. Employer Credit for Pension Plan Contributions
In addition to the startup cost credit, there’s another incentive for offering a retirement plan. Eligible small employers can claim a credit for the contributions they make to employee accounts. This credit is a percentage of the amount contributed by the employer, up to $1,000 per full-time employee. It’s designed to encourage businesses to help their teams save for the future.
7. Disabled Access Credit
This credit is for small businesses that incur expenses to make their workplace more accessible to people with disabilities. It covers costs like removing physical barriers, providing interpreters, or modifying equipment. The credit is 50% of eligible expenditures that exceed $250 but do not exceed $10,250 for a taxable year.
8. Credit for Increasing Research Activities (R&D Tax Credit)
Many small businesses don’t realize that their everyday problem-solving activities could qualify for the R&D tax credit. This credit rewards companies for developing new or improved products, processes, or software. If your business invests in research and development, you could receive a credit to offset your income tax and, in some cases, your payroll tax liability.
9. Employer-Provided Social Security and Medicare Tax Credit (FICA Tip Credit)
This credit applies specifically to businesses in the food and beverage industry where tipping is customary. It allows you to claim a credit for the employer’s share of Social Security taxes and Medicare taxes paid on your employees’ tips. Essentially, you get a credit for the FICA taxes you pay on tips that exceed the federal minimum wage.
10. New Clean Vehicle Credit
If your business purchases a new qualified plug-in electric vehicle (EV) or fuel cell electric vehicle, you may be eligible for a tax credit of up to $7,500. There are income limitations and manufacturer-suggested retail price (MSRP) restrictions, so it’s important to verify that both your business and the vehicle qualify.
How to Claim These Tax Credits
Claiming business tax credits generally involves completing specific forms and attaching them to your federal income tax return. Here’s a simplified overview of the process:
- Determine Eligibility: First, carefully review the requirements for each credit to determine if your business qualifies. The IRS website provides detailed instructions and criteria for every credit.
- Gather Documentation: Keep meticulous records of all related expenses, such as receipts for equipment, payroll records for wages, and premium payments for health insurance. Proper documentation is crucial if the IRS has questions.
- Complete the Correct Forms: Each tax credit has a corresponding IRS form. For example, the Work Opportunity Tax Credit requires Form 5884, and the credit for employer pension plan startup costs is calculated on Form 8881. Many of these credits are then summarized on Form 3800, General Business Credit. For the paid leave credit, you’ll use Form 8994. An employer must use Form 8994 Employer to calculate their claim.
- File Your Tax Return: Submit the completed forms along with your annual tax return. It’s highly recommended to work with a tax professional who can ensure you’re accurately claiming all the credits you’re entitled to. They can help you navigate the complexities and maximize your savings.
Maximize Your Savings This Tax Season
Tax credits are a powerful tool for reducing your tax liability and improving your business’s financial health. By investing in your employees and community, you can unlock significant savings that can be reinvested into your company.
Don’t leave money on the table. Take the time to review these top 10 credits, assess your eligibility, and consult with a tax advisor to ensure you claim the credit you deserve. A little research and preparation can lead to substantial financial benefits for your small business in 2025 and beyond.
