Small Business Tax Credits

A tax credit reduces your tax bill dollar for dollar, which makes it more valuable than a deduction of the same size. Several federal credits are aimed at small businesses, and many go unclaimed because owners do not know they exist or assume they do not qualify. This guide walks through the main ones for 2025 returns, notes what changes for 2026, and explains how credits are claimed.

The main credits

Small employer health insurance credit

For tax year 2025, the employer must have fewer than 25 full-time equivalent employees, pay average annual wages below $67,000 per full-time equivalent, pay a uniform percentage of at least 50 percent of the premiums, and buy coverage through the SHOP Marketplace. The credit starts to shrink above 10 employees and above $33,000 of average wages, and it reaches zero at 25 employees or $67,000. The deduction for premiums is reduced by the credit. The credit period is two consecutive years.

Retirement plan startup credit

Employers with 100 or fewer employees who earned at least $5,000 can claim up to $5,000 per year for three years for ordinary and necessary setup costs. The credit covers 100 percent of costs for employers with 50 or fewer employees, and 50 percent for 51 to 100 employees, subject to the cap. A separate credit of up to $1,000 per employee applies to employer contributions, reduced over five years and, for larger employers, by employee count. Adding an eligible automatic enrollment feature earns $500 per year for three years. You cannot both deduct and claim a credit for the same expense. See retirement plans for business owners.

Employer-provided child care credit

For expenses paid or incurred after December 31, 2025, the One Big Beautiful Bill Act increased this credit from 25 percent to 40 percent of qualified child care expenditures, or 50 percent for eligible small businesses. The annual cap rises from $150,000 to $500,000, or $600,000 for eligible small businesses, with inflation adjustments after 2026. Eligible small businesses are defined by a gross receipts test, so check whether you qualify.

Paid family and medical leave credit

The credit applies when you pay at least 50 percent of normal wages during at least two weeks of annual leave, under a written policy. It was scheduled to end after 2025, and the IRS describes the new law as making it permanent for tax years beginning after December 31, 2025, with a version based on insurance premiums. Check the current Form 8994 instructions before you rely on it for 2026.

Disabled access credit and barrier removal

An eligible small business, with $1 million or less of gross receipts or no more than 30 full-time employees in the prior year, can claim the disabled access credit on Form 8826, up to $5,000 per year. Separately, businesses of any size can deduct up to $15,000 per year for removing architectural and transportation barriers. They can combine the two if the expenses meet both sets of requirements.

Work Opportunity Tax Credit

The IRS says the credit is available for wages paid to certain individuals who began work on or before December 31, 2025, and its page, last updated in July 2026, shows no extension. The IRS says the maximum credit ranged from $1,200 to $9,600 per hire, depending on the employee hired and the length of employment. For people hired in 2026, do not assume the credit applies unless Congress extends it.

How credits are claimed

Credits are reported on their own forms, then carried to Form 3800, which applies a limit based on your tax liability. Partnerships and S corporations pass credits to owners on Schedule K-1. Some credits, such as the research credit for qualified small businesses, can be applied against payroll taxes. Keep the documentation behind each credit, since the IRS can ask for it.

Credits that ended or narrowed

The 2025 law ended or shortened several energy-related credits. For example, the commercial clean vehicle credit ends for vehicles acquired after September 30, 2025. Check the IRS pages before planning a purchase around an energy credit.

How we can help

We review your business each year for credits you may be missing, prepare the forms and track carryforwards. See our business tax preparation and tax planning services, or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.