Any organization described in section 501(c), which is exempt under section 501(a) that otherwise qualifies for the small business tax credit is eligible to receive the credit. However, for tax-exempt organizations, the applicable percentage for the credit is limited to 35 percent. The small business tax credit is otherwise calculated in the same manner for tax-exempt organizations that are qualified small employers as the tax credit is calculated for all other qualified small employers.

Tax-exempt organizations are eligible to apply the tax credit against the organization’s liability as an employer for payroll taxes for the taxable year to the extent of: (1) the amount of income tax withheld from its employees under section 3401(a); (2) the amount of hospital insurance tax withheld from its employees under section 3101(b); and (3) the amount of the hospital tax imposed on the organization under section 3111(b). However, the organization is not eligible for a credit in excess of the amount of these payroll taxes.