Global intangible low-taxed income, known as GILTI, is a category of foreign earnings that U.S. shareholders of controlled foreign corporations must include in their own taxable income each year, whether or not those earnings are paid out as dividends. For tax years beginning in 2026, the One Big Beautiful Bill Act rewrote the framework: the 10% return on tangible assets that used to shield a slice of foreign earnings is gone, the corporate deduction under Section 250 fell from 50% to 40%, and the regime has been formally renamed “net CFC tested income.” The upshot is that more foreign income now falls inside GILTI, taxed at an effective corporate rate of roughly 12.6% before foreign tax credits.
Who Has To Report It
The inclusion requirement runs to any “United States shareholder” of a “controlled foreign corporation.” Both terms are defined by statute and reach further than most people expect.
A United States shareholder is any U.S. person, including individuals, domestic corporations, partnerships, trusts, and estates, that owns at least 10% of either the combined voting power or the total value of all classes of stock in a foreign corporation.1Office of the Law Revision Counsel. 26 USC 951 – Amounts Included in Gross Income of United States Shareholders Ownership can be direct, indirect through foreign entities, or constructive under attribution rules that treat stock held by related parties as your own.
A foreign corporation becomes a controlled foreign corporation when more than 50% of its voting power or value is owned by U.S. shareholders on any day of its taxable year.2Internal Revenue Service. Determination of U.S. Shareholder and CFC Status Once that line is crossed, every 10% U.S. shareholder must include their share of the entity’s tested income on their own return.
One boundary is worth noting. Between 2018 and 2025, a rule change let stock owned by a foreign person be attributed downward to a related U.S. person, sweeping many foreign corporations into CFC status even without a direct U.S. majority. The One Big Beautiful Bill Act reinstated the older limitation, so some of those corporations should fall out of CFC classification going forward.
What Counts as Tested Income
Tested income is the starting figure. For each controlled foreign corporation, you begin with gross income, remove several excluded categories, subtract allocable deductions, and the remainder is tested income if positive or tested loss if negative.3eCFR. 26 CFR 1.951A-2 – Tested Income and Tested Loss
The excluded categories are:
- Income effectively connected with a U.S. trade or business conducted by the foreign corporation
- Subpart F income already picked up under Section 951
- High-taxed income excluded under Section 954(b)(4) when the election is made
- Dividends received from a related person
- Foreign oil and gas extraction income
These carve-outs keep the same income from being taxed twice under overlapping international provisions.4Internal Revenue Service. Global Intangible Low-Taxed Income
If you own shares in more than one CFC, tested losses from unprofitable entities reduce the tested income of profitable ones. You aggregate your pro rata share of tested income across all your CFCs and subtract your pro rata share of tested losses. Only the net positive figure becomes your inclusion.5Office of the Law Revision Counsel. 26 USC 951A – Net CFC Tested Income Included in Gross Income of United States Shareholders If losses exceed income, the amount is zero. There is no negative GILTI and no loss you can carry to another year.
How the Inclusion Is Calculated in 2026
The current calculation is more direct than the original version. Before, you had to compute a 10% deemed tangible income return on qualified business asset investment and subtract it. Congress struck that subsection, so all net tested income from a controlled foreign corporation now falls inside the inclusion.5Office of the Law Revision Counsel. 26 USC 951A – Net CFC Tested Income Included in Gross Income of United States Shareholders
A worked example. You own 100% of two CFCs. CFC-1 has $2 million of tested income; CFC-2 has a $300,000 tested loss. Your net CFC tested income is $1.7 million. Under the pre-2026 rules you would have subtracted 10% of the adjusted basis in tangible property before arriving at GILTI. Under the current rules, the full $1.7 million is your inclusion.
The Section 250 Deduction
Domestic corporations, but not individuals, can claim a deduction equal to 40% of the GILTI inclusion plus the related Section 78 gross-up.6Office of the Law Revision Counsel. 26 USC 250 – Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income At the 21% corporate rate, that 40% deduction leaves 60% of the inclusion effectively taxed, producing the roughly 12.6% pre-credit rate. Under the original TCJA rules the deduction was 50% and the effective rate was 10.5%. The old statute had scheduled a drop to 37.5% after 2025; the One Big Beautiful Bill Act fixed the deduction at 40% instead.
The Section 78 Gross-Up
When a domestic corporation claims foreign tax credits on its GILTI, the foreign taxes deemed paid also get pulled into gross income as a constructive dividend. The gross-up equals 100% of the tested foreign income taxes, even though only 90% of those taxes actually generate a credit.7eCFR. 26 CFR 1.78-1 – Gross Up for Deemed Paid Foreign Tax Credit The 40% Section 250 deduction applies to the gross-up as well, so it partly offsets the added income. Forgetting the gross-up is a common filing mistake that draws IRS adjustments.
What Individual Shareholders Can Do About It
Individuals face a problem the corporate rules were not built around. The Section 250 deduction is only available to domestic corporations, so without relief, GILTI stacks on top of an individual’s other income and is taxed at rates that can reach 37%. Section 962 offers a workaround: an individual U.S. shareholder can elect to be taxed on the GILTI inclusion as if they were a corporation.8Office of the Law Revision Counsel. 26 USC 962 – Election by Individuals To Be Subject to Tax at Corporate Rates
Making the election opens the door to the 21% corporate rate, the Section 250 deduction on the GILTI portion, and deemed-paid foreign tax credits under Section 960 that individuals otherwise cannot use. The trade-off comes later. When the foreign corporation distributes the previously taxed earnings, additional tax may be owed to the extent the distribution exceeds the corporate-level tax already paid. The election is made annually by attaching a statement to the return and cannot be revoked for that year without IRS consent.
Foreign Tax Credits
Foreign tax credits are the main tool for avoiding double taxation on GILTI, and they come with limits worth understanding before you rely on them.
A domestic corporation that includes GILTI is deemed to have paid 90% of the tested foreign income taxes attributable to its inclusion percentage.9Office of the Law Revision Counsel. 26 USC 960 – Deemed Paid Credit for Subpart F Inclusions The other 10% is a permanent haircut. Before 2026, the haircut was 20%, so this is a meaningful improvement, though companies operating in higher-tax jurisdictions may still end up with excess credits they cannot fully use.
Unused credits in the GILTI basket, technically the Section 951A category, cannot be carried forward or back to another tax year.10eCFR. 26 CFR 1.904-2 – Carryback and Carryover of Unused Foreign Tax If credits exceed the year’s limitation, the excess is lost. That use-it-or-lose-it feature matters most for companies with volatile foreign earnings or fluctuating foreign rates.
The credit limitation itself now looks better than it once did. Under the 2026 rules, neither research and experimental expenditures nor interest expense are allocated to the GILTI category for limitation purposes; only expenses directly allocable to the income count. Under the prior rules, interest allocation could shrink the limitation enough to leave foreign taxes uncreditable even when the effective foreign rate sat well below 21%.
The High-Tax Exclusion
Some foreign income can skip the GILTI calculation entirely. If a controlled foreign corporation’s income is already taxed abroad at more than 18.9%, which is 90% of the 21% U.S. corporate rate, that income can be excluded from tested income under the high-tax exclusion.11Federal Register. Guidance Under Sections 951A and 954 Regarding Income Subject to a High Rate of Foreign Tax
The exclusion is not automatic. Controlling domestic shareholders of the CFC group have to make the election annually, and it applies to every CFC in the group; there is no cherry-picking. The effective rate is measured on each “tested unit,” which generally means each branch, entity, or group of entities treated as a single unit under the regulations, so a CFC with one high-taxed branch and one low-taxed branch can produce mixed results. Excluded income also loses access to the deemed-paid foreign tax credit, so the election only pays off when the foreign rate is high enough that no residual U.S. tax would have been due anyway.
Forms and Deadlines
Reporting a GILTI inclusion involves several interconnected forms, and the data on the first one drives every number that follows.
Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) is filed for each controlled foreign corporation. It captures the gross income, deductions, earnings and profits, and asset figures that feed the calculation.
Form 8992 (U.S. Shareholder Calculation of Global Intangible Low-Taxed Income) is where the inclusion is computed. It pulls each CFC’s tested income or tested loss into an aggregate figure and produces the final number.12Internal Revenue Service. About Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI) Schedule A lists each CFC by name and reference ID with its pro rata tested income and tested loss. The computed inclusion flows to Schedule C of Form 1120 for corporate filers or to Schedule 1 (Form 1040) for individuals.13Internal Revenue Service. Instructions for Form 8992 – U.S. Shareholder Calculation of Global Intangible Low-Taxed Income
Corporations claiming the deemed-paid credit on GILTI use Form 1118, completing a separate version for the Section 951A category. Schedule D computes the taxes deemed paid under Section 960(d) and the Section 78 gross-up.14Internal Revenue Service. Instructions for Form 1118 Individual shareholders making a Section 962 election generally use Form 1116 to claim their foreign tax credits, often with supplemental worksheets.
Form 8992 and its schedules are attached to the annual return and filed by the return’s due date, including extensions. The tax on a GILTI inclusion, however, is due on the original due date. An extension buys time to file paperwork; it does not extend payment. Late payment and late filing both trigger monthly penalties capped at 25% of the unpaid tax, and interest runs on top from the original due date.15Internal Revenue Service. Failure to Pay Penalty16Internal Revenue Service. Failure to File Penalty