A GILTI inclusion is the share of a controlled foreign corporation’s foreign earnings that a U.S. shareholder must report as current taxable income, even when nothing has been distributed to the United States. For a domestic corporation, the inclusion is taxed at an effective U.S. rate of roughly 12.6% after the Section 250 deduction. For an individual, it hits ordinary rates up to 37% unless the shareholder elects to be taxed as a corporation on the amount.
The provision came out of the Tax Cuts and Jobs Act of 2017 and was rewritten by the One Big Beautiful Bill Act, signed July 4, 2025.1The White House. President Trump’s One Big Beautiful Bill Is Now the Law The 2025 law renamed the regime “Net CFC Tested Income” (NCTI), though the IRS continues to use the GILTI label on its forms. The purpose has not changed: U.S. shareholders cannot defer U.S. tax indefinitely by holding profits inside low-tax foreign subsidiaries.
Who Has a GILTI Inclusion
Two definitions decide whether the rules reach you. A foreign corporation is a controlled foreign corporation (CFC) when U.S. shareholders together own more than 50% of its voting power or stock value.2Office of the Law Revision Counsel. 26 U.S.C. 957 – Controlled Foreign Corporations; United States Persons A U.S. shareholder is any U.S. person — individual, corporation, partnership, trust, or estate — holding at least 10% of that corporation’s vote or value.3Office of the Law Revision Counsel. 26 U.S.C. 951 – Amounts Included in Gross Income of United States Shareholders
Ownership is counted directly, indirectly through foreign entities, and constructively under principles borrowed from Section 318. One change matters for 2026: the One Big Beautiful Bill restored Section 958(b)(4), which blocks “downward attribution.” Under the TCJA, stock held by a foreign parent could be attributed down to its U.S. subsidiaries, pulling foreign corporations into CFC status even when no U.S. person held enough stock directly. That expansion is reversed, so fewer foreign corporations now qualify as CFCs.
If you meet the shareholder test for a CFC, you calculate and report your pro rata share of the inclusion on Form 8992, filed with your income tax return.4Internal Revenue Service. About Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)
How the Inclusion Amount Is Calculated
The math starts inside each CFC. The CFC computes gross income as if it were a U.S. corporation, then strips out categories that are taxed elsewhere or excluded by statute: Subpart F income, income effectively connected with a U.S. business, dividends from related corporations, foreign oil and gas extraction income, and any income covered by the high-tax exclusion.5Office of the Law Revision Counsel. 26 U.S.C. 951A – Net CFC Tested Income Included in Gross Income of United States Shareholders After subtracting allocable deductions — interest, depreciation, operating costs — what remains is “tested income” or “tested loss.”
At the shareholder level, you add your pro rata share of tested income from every CFC and subtract your pro rata share of tested losses from every CFC. The result is net CFC tested income. If losses exceed income across the group, the net is zero, and the excess loss does not carry forward.6Internal Revenue Service. Concepts of Global Intangible Low-Taxed Income Under IRC 951A A loss in one CFC only helps you to the extent another CFC had income in the same year.
From 2018 through 2025, shareholders could reduce the inclusion by a notional 10% return on the CFC’s tangible depreciable assets, known as Qualified Business Asset Investment (QBAI).7U.S. Government Publishing Office. 26 U.S.C. 951A The One Big Beautiful Bill repealed that offset for tax years beginning in 2026. The full amount of net CFC tested income is now the inclusion. Shareholders with capital-intensive foreign operations — factories, equipment, physical infrastructure — lose the biggest piece of their old shield.
The High-Tax Exclusion
Income already taxed heavily abroad can be dropped out of the calculation by election. The threshold is an effective foreign tax rate above 90% of the top U.S. corporate rate, which with the current 21% rate means an effective foreign rate greater than 18.9%.8eCFR. 26 CFR 1.951A-2 – Tested Income and Tested Loss The election is made CFC by CFC, year by year. For subsidiaries operating in the United Kingdom, Japan, Germany, and other high-rate jurisdictions, the election can zero out the inclusion. With QBAI gone, this election carries more weight in 2026 than it did before.
What a Corporate Shareholder Pays
A domestic corporation gets two benefits that bring the headline rate down sharply.
The first is the Section 250 deduction. A corporate shareholder deducts 40% of its inclusion, including the Section 78 gross-up for deemed-paid foreign taxes.9Office of the Law Revision Counsel. 26 U.S.C. 250 – Foreign-Derived Deduction Eligible Income and Net CFC Tested Income Against the 21% corporate rate, that produces an effective U.S. rate of approximately 12.6% before foreign tax credits. The original TCJA deduction was 50% through 2025; the OBBBA set it at 40% permanently.
The second is the deemed-paid foreign tax credit under Section 960. A domestic corporation is treated as having paid 90% of the foreign income taxes its CFCs paid on tested income.10Office of the Law Revision Counsel. 26 U.S.C. 960 – Deemed Paid Credit for Subpart F Inclusions The remaining 10% is permanently disallowed; the pre-2026 haircut was 20%.
These credits sit in their own foreign tax credit basket. Excess credits in the basket cannot be carried back, carried forward, or used against U.S. tax on domestic income or on other categories of foreign income.11Internal Revenue Service. Foreign Tax Credit – General Principles A mismatch in a single year permanently wastes credits. The OBBBA removed one source of mismatch: U.S.-parent interest expense and research costs no longer have to be allocated to the GILTI basket when figuring the credit limitation.
What an Individual Shareholder Pays
An individual U.S. shareholder faces the inclusion at ordinary rates, which top out at 37%. Nothing in the regular individual rules provides the 40% deduction or the deemed-paid credit.
Section 962 is the workaround. By electing it, an individual computes U.S. tax on the inclusion as if they were a domestic corporation, picking up the 21% rate, the 40% Section 250 deduction, and the 90% deemed-paid credit.6Internal Revenue Service. Concepts of Global Intangible Low-Taxed Income Under IRC 951A For someone in the top bracket, the current-year bill often drops by more than half.
The cost comes when the CFC actually distributes the earnings. The individual must include the distribution in gross income to the extent it exceeds the U.S. tax paid under the Section 962 election. Whether that later distribution gets qualified dividend treatment (up to 20% plus the 3.8% net investment income tax) or ordinary rates depends on whether the CFC is a “qualified foreign corporation,” which generally means incorporated in a country with a comprehensive income tax treaty with the United States. Without treaty coverage, the distribution is ordinary income.
Avoiding Double Tax on Later Distributions
Once an amount has been included under GILTI, it becomes “previously taxed earnings and profits” (PTEP) under Section 959 and should not be taxed again when the CFC distributes it.12Office of the Law Revision Counsel. 26 U.S.C. 959 – Exclusion From Gross Income of Previously Taxed Earnings and Profits For a corporate shareholder, distributions of PTEP come back tax-free. For an individual who used Section 962, the exclusion is capped at the U.S. tax actually paid in the inclusion year, and anything above that may be taxable as a dividend. PTEP has to be tracked category by category and year by year, tied back to the inclusion that created it, which is one of the more detail-heavy pieces of ongoing compliance.
Reporting and Penalties
Two forms carry the weight. Form 8992, with its Schedule A, computes the inclusion and the pro rata share from each CFC and is filed with your income tax return.4Internal Revenue Service. About Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI) Form 5471 is the information return for U.S. persons with interests in foreign corporations, and it reports the CFC’s financial activity, earnings and profits, and PTEP accounts.
Missing a complete and correct Form 5471 by the due date triggers a $10,000 penalty per form. If the IRS sends a notice and the form is still not filed within 90 days, another $10,000 accrues for each 30-day period, up to a $50,000 continuation cap per form.13Internal Revenue Service. International Information Reporting Penalties Those amounts apply per CFC and per year. A shareholder with five CFCs who misses one year is looking at $300,000 in information-return exposure before anyone has even computed a tax deficiency. Smaller shareholders are where this most often breaks down, because the GILTI calculation and the Form 5471 obligation travel together whether or not the inclusion itself is large.