Running a small business is no small feat. From managing day-to-day operations to balancing finances, every decision counts. But did you know there are tax credits designed specifically to help small business owners like you?
These tax credits can reduce your tax liability, boost your cash flow, and even encourage investment in your business. So in this blog, we’ll explore the different types of tax credits for small businesses in 2025 and how they can benefit your bottom line.
What is a tax credit?
A tax credit is a dollar-for-dollar reduction in the amount of taxes a business owes. Unlike deductions, which lower taxable income, tax credits directly decrease the tax bill, making them particularly valuable for small business owners looking to save money. For instance, a $1,000 tax credit reduces your tax liability by $1,000.
The key to benefiting from tax credits is understanding which ones your business qualifies for and how to claim them. Let’s dive into some of the most relevant tax credits for small businesses in 2025.
Credit for small employer health insurance premiums
The Small Business Health Care Tax Credit helps businesses afford the cost of providing health insurance to employees. To qualify, your business must have fewer than 25 full-time equivalent employees, pay an average wage of less than $56,000 (for 2025), and cover at least 50% of employees’ health insurance premiums.
This credit can cover up to 50% of premiums for small businesses and 35% for non-profits, making it a powerful incentive to provide employee health benefits.
Credit for small employer pension plan startup costs
If you’re setting up a retirement plan for employees, you might be eligible for a credit to offset startup costs. The Credit for Small Employer Pension Plan Startup Costs is available to businesses with 100 or fewer employees who earned at least $5,000 during the year.
The credit covers 50% of eligible costs, up to $5,000 annually, for the first three years of the plan. An additional credit may apply if you contribute to employee accounts.
Employer-provided child care tax credit
Businesses that provide childcare facilities or contribute to employee childcare expenses can claim the Employer-Provided Child Care Tax Credit. This credit equals 25% of facility costs and 10% of resource and referral expenses, with a maximum credit of $150,000 per year. Providing childcare not only benefits your employees but also enhances workplace satisfaction and retention.
Work opportunity tax credit
The Work Opportunity Tax Credit (WOTC) incentivizes businesses to hire individuals from targeted groups who face significant barriers to employment. The credit amount varies based on the employee’s wages and hours worked but can reach up to $9,600 per qualified hire.
So who is eligible for this tax credit? Some of the groups include:
- Veterans
- Individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits
- Long-term unemployed individuals.
Disabled access tax credit
If your business has made accommodations to improve accessibility for individuals with disabilities, you may qualify for the Disabled Access Tax Credit. This credit is designed for small businesses with gross receipts of $1 million or less or fewer than 30 full-time employees.
The credit covers 50% of eligible expenditures, up to $10,250 annually, such as installing ramps, modifying restrooms, or providing accessible technology.
Family and medical leave tax credit
To encourage businesses to provide paid family and medical leave, the IRS offers the Family and Medical Leave Tax Credit. This credit applies to employers who provide at least two weeks of paid leave at a minimum of 50% of the employee’s regular wages. The credit ranges from 12.5% to 25% of wages paid during leave, depending on the employer’s level of coverage.
Tax credit for employer social security and medicare taxes paid on certain employee tips
If you run a business in the food and beverage industry, you may qualify for a credit for Social Security and Medicare taxes paid on employee tips. This credit applies to tips received by employees who earn at least $5.15 per hour in wages. It’s a valuable credit that helps businesses manage payroll tax costs in a tip-heavy industry.
Credit for increasing research activities
Innovation pays—literally! The Credit for Increasing Research Activities rewards businesses that invest in research and development (R&D). Qualified activities include developing new products, processes, or software.
The credit amount varies but can be a percentage of eligible R&D expenses. Startups and small businesses can also use this credit to offset payroll taxes.
New markets tax credit
The New Markets Tax Credit (NMTC) encourages investment in low-income communities. By investing in qualified community development entities (CDEs), businesses can receive credits worth 39% of the investment amount, spread over seven years. This credit supports economic development and job creation in underserved areas.
The general business tax credit
The General Business Tax Credit encompasses various individual credits a business may qualify for, such as those listed above. The credit amount depends on the specific credits claimed and other factors, but it allows businesses to consolidate their tax benefits on a single form (Form 3800).
Final Thoughts
Tax credits for small businesses are more than just a financial perk. For small businesses in 2025, there’s a wealth of tax credits designed to reward good practices like creating jobs, offering benefits, and even going green. Ready to unlock the benefits of these tax credits? Start by organizing your financial records with Receiptor AI.
With our AI-powered receipt scanning and categorization tools, you can streamline your bookkeeping and ensure you never miss out on valuable tax savings. Sign up for a free trial today and take the first step toward maximizing your tax savings in 2025!
