HR-3275 — Small Business Tax Relief Act

YourVoice.Now Summary

Your MoneyCorporate BenefitsHigh-Earner BenefitsTransparency & Accountability

Cuts taxes for people who work for themselves — and taxes fund managers' profit share like wages.

Your Money

Write-off for self-employment tax — three-quarters instead of half

If you work for yourself, you can deduct half of your self-employment tax today. You could deduct three-quarters of it if your adjusted gross income is under $400,000, starting with tax years after 2024.

Corporate Benefits

Tax cut for small corporations — 18% on the first $400,000

A corporation with taxable income up to $5 million would pay 18% on its first $400,000. The rest of its income would stay at 21%, and owners who report business income on a personal return see no change.

Fund profit shares held by companies — the higher tax skips them

The new rules would not apply to fund profit shares owned by a U.S. corporation. Those profits would be taxed under the regular corporate rules instead.

Delay for publicly traded fund firms — one change waits 10 years

Fund firms whose shares trade publicly are taxed as partnerships, which avoids a second layer of tax. Carried interest income could cost them that status, but not until tax years starting more than 10 years after the law takes effect.

Money companies keep from stock buybacks — tax rises to 1.5%

Companies now pay a 1% tax when they buy back their own shares. That would rise to 1.5% for buybacks after December 31, 2024.

High-Earner Benefits

Family-run investment partnerships — their own money keeps the lower rate

Money a manager puts into their own fund keeps the lower investment rate, but only if outside partners are treated the same way. Family partnerships, where the partners are all relatives, would get an exception from that test.

Fund managers' tax break on profit shares — now taxed like pay

Fund managers are paid mostly with a share of the fund's profits, called carried interest. That share is usually taxed as a long-term investment gain, but it would be taxed like pay instead.

Fund managers' break on self-employment tax — profit shares now count

Self-employment tax pays for Social Security and Medicare. A fund manager's profit share does not count toward it today, but it would under this bill.

Fund managers' tax break on selling their stake — gains taxed like pay

Selling a fund stake now produces a capital gain, taxed at the lower investment rate. That gain would be taxed like pay, and handing the stake down at death would not wipe out the tax.

Fund managers' startup-stock tax break — not allowed on profit shares

Gains on stock in small startups can be partly or fully tax-free today. That break would not apply to the part of those gains that pays a fund manager.

Transparency & Accountability

Penalty for avoiding the new fund tax rules — 40% of unpaid tax

The usual penalty for underpaying tax is 20% of what is owed. It would double to 40% when the underpayment comes from working around these new rules.

More about this bill

If you work for yourself, you could write off more of your self-employment tax. The deduction would rise from half of that tax to three-quarters. You would qualify if your adjusted gross income is under $400,000. The change would reach back to tax years that began after December 31, 2024. Small corporations would get a lower rate. A corporation with taxable income up to $5 million would pay 18% on its first $400,000. The rest of its income would stay at 21%. This covers businesses taxed as corporations. It does not cover owners who report business income on a personal return. The tax on stock buybacks would also rise, from 1% to 1.5%. Investment fund managers would pay much more on their profit share. That share, called carried interest, is usually taxed as a long-term investment gain. The top rate on those gains is 20% today. It would be taxed like pay instead, where the top rate is 37%. Self-employment tax would apply to it as well. Selling a fund stake would be taxed the same way. Managers who hold their stake through a corporation would be exempt. Publicly traded fund firms would get a 10-year delay.

Congressional Summary

Small Business Tax Relief Act This 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 bill treats 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, and imposes 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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