How to Calculate GILTI: Formula, Section 962, and Distributions

To calculate GILTI, you take your share of each controlled foreign corporation’s net tested income, add up those amounts across all your CFCs, subtract a routine 10 percent return on the corporations’ tangible business assets (reduced by allocable interest), and the remainder is your Global Intangible Low-Taxed Income inclusion. For a domestic C corporation in a tax year beginning in 2026, that inclusion carries an effective federal rate of 12.6 percent after the Section 250 deduction, and foreign tax credits can pull it lower. The math runs through Form 8992, with the underlying figures built on each CFC’s Form 5471.

Who the Calculation Applies To

You run the calculation if you are a U.S. Shareholder of a Controlled Foreign Corporation. A foreign corporation is a CFC when U.S. Shareholders together own more than 50 percent of its voting power or stock value on any day of the tax year. A U.S. Shareholder is any U.S. person—individual, domestic corporation, partnership, trust, or estate—owning at least 10 percent of that voting power or value.¹

Ownership counts direct shares, shares held through foreign entities, and stock attributed to you under constructive-ownership rules such as family attribution or attribution through entities you have an interest in.² You include GILTI if you hold CFC stock on the last day of the corporation’s tax year.

Step 1: Net CFC Tested Income

Start inside each CFC. Take its gross income and strip out the categories the statute treats separately:

Income effectively connected with a U.S. trade or business, which is already taxed domestically.³
Subpart F income, which you pick up under the older regime.
Foreign oil and gas extraction income, which has its own treatment.
Income you elect to exclude under the high-tax exclusion, available when the CFC’s income was subject to a foreign effective tax rate above 18.9 percent (90 percent of the 21 percent U.S. corporate rate). The election is made year by year.⁴

What’s left is the CFC’s gross tested income. From that, subtract the deductions properly allocable to it: operating expenses, foreign taxes, and interest. Interest expense receives extra scrutiny to prevent double-counting elsewhere in the international rules. If allocable deductions exceed gross tested income, the CFC produces a tested loss rather than tested income.

Now aggregate across every CFC you own. Add each CFC’s tested income and subtract each CFC’s tested loss. Because the aggregation happens at the shareholder level, a loss in one subsidiary can offset income earned by another. All amounts start in the CFC’s functional currency and translate to U.S. dollars at the average exchange rate for the CFC’s tax year.⁵ The per-CFC figures come from Schedule I-1 of Form 5471 and are consolidated on Schedule A of Form 8992.⁶

Step 2: Net Deemed Tangible Income Return

GILTI is designed to tax the earnings that exceed a routine return on physical assets, so the next step measures that routine return.

Qualified Business Asset Investment

QBAI is the average adjusted basis of tangible property the CFC uses to produce tested income—machinery, factories, equipment, and other depreciable property allowed a deduction under Section 167.⁷ Adjusted basis is computed under the Alternative Depreciation System, which generally uses straight-line depreciation over longer recovery periods than standard domestic methods.⁸ Measure each asset’s basis at the close of every quarter, then average the four quarterly figures for the year.

The 10 Percent Return, Then the Interest Reduction

The Deemed Tangible Income Return equals 10 percent of total QBAI across all your CFCs.⁹ Reduce that 10 percent figure by your pro rata share of interest expense deducted against tested income. The result is the Net Deemed Tangible Income Return (NDTIR). If the interest reduction exceeds the 10 percent amount, NDTIR is zero rather than negative.

Step 3: Apply the Formula

The math is straight subtraction:

GILTI = Net CFC Tested Income − Net Deemed Tangible Income Return

You do the arithmetic in Part II of Form 8992.⁶ If NDTIR equals or exceeds Net CFC Tested Income, GILTI is zero for the year. There is no carryforward or carryback of a surplus routine return, and the inclusion is required whether or not the CFC actually distributed cash.

A domestic corporation reports the amount on Schedule C of Form 1120, line 17.¹⁰ An individual without a Section 962 election reports it on Schedule 1 (Form 1040) as other income.⁶ Because the inclusion is earnings you have not necessarily received, your basis in the CFC stock increases by the included amount, which prevents a second tax hit when the earnings are later distributed.¹¹

Turning the Inclusion Into Tax Owed

The gross inclusion is not the tax. A domestic C corporation applies the Section 250 deduction, which for tax years beginning in 2026 equals 40 percent of the sum of the GILTI inclusion and its related Section 78 gross-up.¹² At the 21 percent corporate rate, a 40 percent deduction produces an effective 12.6 percent rate on GILTI before credits. The 50 percent deduction that applied through December 31, 2025, produced a 10.5 percent effective rate, so the 2026 shift is a real increase.

Compute the deduction on Form 8993, which coordinates it with the foreign-derived intangible income deduction.⁹ The deduction is available only to domestic C corporations and to individuals who make a Section 962 election.

Watch the taxable income limitation. If the corporation’s taxable income before the Section 250 deduction is less than its combined foreign-derived deduction eligible income and GILTI, the deduction is scaled back proportionally. It cannot create or increase a net operating loss.¹² Domestic losses can quietly shrink the benefit.

Foreign Tax Credits and the Section 78 Gross-Up

A domestic corporation with a GILTI inclusion is deemed to have paid a portion of the foreign income taxes its CFCs paid on the underlying tested income. For tax years beginning after June 28, 2025, the deemed-paid credit equals 90 percent of the CFC’s tested foreign income taxes attributable to the inclusion, up from the prior 80 percent limit.¹³

Because the credit rests on deemed-paid taxes, you also include a Section 78 gross-up equal to those deemed-paid taxes, treated as a dividend and added back to income. The 40 percent Section 250 deduction applies to the gross-up as well.¹²

The GILTI credit sits in its own foreign tax credit basket and cannot be combined with credits from other categories. Any GILTI credits you cannot use in the current year are permanently lost; there is no carryforward or carryback.¹⁴ That “use it or lose it” rule is why precise annual calculations matter.

Individual Shareholders and the Section 962 Election

Without an election, an individual U.S. Shareholder pays tax on GILTI at ordinary rates up to 37 percent, with no Section 250 deduction and no deemed-paid foreign tax credit. Section 962 lets an individual elect to be taxed on the inclusion as if it were received by a domestic corporation.¹⁵

With the election, the inclusion is taxed at the 21 percent corporate rate, the 40 percent Section 250 deduction applies, and deemed-paid foreign tax credits become available.⁹ You make the election annually by attaching a statement to your return. The trade-off comes later: when the CFC distributes the previously taxed earnings, you must recognize income to the extent the distribution exceeds the corporate-level tax already paid. The election defers a portion of the tax rather than eliminating it.

What Happens When the Earnings Are Distributed

Amounts already picked up as GILTI become previously taxed earnings and profits, or PTEP. When the CFC actually distributes those earnings as a dividend later on, the distribution is excluded from your income so you are not taxed twice.¹⁶ The distribution does reduce your stock basis by the amount excluded, unwinding the earlier basis increase.¹¹ PTEP balances are tracked on Schedule P of Form 5471, with GILTI amounts kept separate from Subpart F and other categories.

A Note on State Tax

The 12.6 percent effective rate is a federal figure. States vary widely: some conform to the federal inclusion and allow a state analogue to the Section 250 deduction, some include GILTI without allowing the deduction (taxing it at the full state corporate rate), some exclude GILTI entirely, and several have no corporate income tax at all. If you file in more than one state, run each state’s conformity rules through your projection separately.

1
Office of the Law Revision Counsel. 26 U.S.C. 951 – Amounts Included in Gross Income of United States Shareholders
2
Office of the Law Revision Counsel. 26 U.S.C. 958 – Rules for Determining Stock Ownership
3
Office of the Law Revision Counsel. 26 USC 951A – Net CFC Tested Income Included in Gross Income of United States Shareholders
4
Federal Register. Guidance Under Sections 951A and 954 Regarding Income Subject to a High Rate of Foreign Tax
5
Internal Revenue Service. Definition of Appropriate Exchange Rate Overview
6
Internal Revenue Service. Instructions for Form 8992
7
Office of the Law Revision Counsel. 26 U.S.C. 167 – Depreciation
8
Office of the Law Revision Counsel. 26 U.S.C. 168 – Accelerated Cost Recovery System
9
Internal Revenue Service. Instructions for Form 8993
10
Internal Revenue Service. Instructions for Form 1120
11
Federal Register. Previously Taxed Earnings and Profits and Related Basis Adjustments
12
Office of the Law Revision Counsel. 26 USC 250 – Foreign-Derived Deduction Eligible Income and Net CFC Tested Income
13
Internal Revenue Service. Effective Date and Application of Section 960(d)(4)
14
IRS.gov. Concepts of Global Intangible Low-Taxed Income Under IRC 951A
15
eCFR. 26 CFR 1.962-1 – Limitation of Tax for Individuals on Amounts Included in Gross Income Under Section 951(a)
16
Office of the Law Revision Counsel. 26 U.S. Code 959 – Exclusion From Gross Income of Previously Taxed Earnings and Profits