Small corporations with taxable income up to $5 million would pay a reduced 18 percent federal tax rate on their first $400,000 of income, instead of the current flat 21 percent corporate rate. Investment fund managers would see their "carried interest" — the share of investment profits they earn as compensation — taxed as ordinary income (rates up to 37 percent) rather than the lower long-term capital gains rate (up to 20 percent), and that income would also become subject to self-employment tax. The bill adds a new Internal Revenue Code Section 710 to govern this treatment, repeals the existing three-year holding-period rule (Section 1061), and imposes a 40 percent penalty on underpayments tied to avoiding the new rules. Self-employed individuals earning less than $400,000 could deduct three-quarters of their self-employment taxes, up from one-half. The excise tax on corporate stock buybacks would rise from 1 percent to 1.5 percent.
Corporate Benefits
- Small-business corporate tax rate — Lowered to 18% on the first $400,000 for corporations under $5M income
- Carried-interest income tax — Net capital gain on investment-management interests taxed as ordinary income
- Self-employment tax on fund managers — Carried-interest income now counts toward net self-employment earnings
- Stock buyback excise tax — Raised from 1% to 1.5% on corporate share repurchases
Average Household Impact
- Self-employment tax deduction — Raised from one-half to three-quarters for individuals earning under $400,000
Transparency & Accountability
- Reporting and recordkeeping requirements — Added for partnerships holding investment-management interests
- Tax-avoidance penalty — 40% accuracy penalty added for underpayments tied to carried-interest rules
Congressional Summary
Small Business Tax Relief ActThis bill reduces the federal corporate income tax rate for certain small businesses, increases the federal tax deduction for self-employment taxes, modifies the taxation of carried interest, and increases the federal excise tax on stock buybacks.For corporations with taxable income that does not exceed $5 million, the bill reduces the income tax rate on the portion of the corporation's taxable income that does not exceed $400,000 to 18% (currently 21%).The bill increases the tax deduction for self-employment taxes for individuals with an adjusted gross income of less than $400,000 to 75% (from 50%) of such taxes paid.Under the bill, net capital gain and loss attributable to carried interest is taxed at ordinary income tax rates. (Carried interest is currently taxed at capital gains tax rates, which may be lower than applicable ordinary income tax rates. Carried interest is the share of profits received by the general partner in a private equity firm or hedge fund from the assets managed by that general partner.)The billtreats as ordinary the money (or fair market value of property) received by a partner in a sale or exchange of carried interest,requires distributions of carried interest by a partnership in exchange for interest in other partnership property to be recognized ordinary gain, andimposes self-employment taxes on carried interest income.Finally, the bill increases the excise tax on stock buybacks to 1.5% (from 1%) of the repurchased stock’s fair market value.
Details
- Congress
- 119th
- Chamber
- House
- Status
- summarized
- Action
- Introduced in House
- Action Date
- 2025-05-08
- Date Added
- 2026-06-13
- Source
- Congress.gov →
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