S-445 — Carried Interest Fairness Act of 2025

YourVoice.Now Summary

High-Earner BenefitsCorporate BenefitsTargeted & Unrelated ProvisionsTransparency & Accountability

Fund managers' share of investment profits would be taxed like wages — up to 37% instead of the 20% investment rate.

High-Earner Benefits

Fund managers' lower tax rate — profit share taxed up to 37%

A fund manager's cut of the profits is called carried interest. Today it is taxed as a long-term investment gain. The bill would tax it as ordinary income, at rates up to 37%. That would start with tax years ending after the bill becomes law.

Fund managers' break from self-employment tax — profit share would be covered

Carried interest would count as self-employment earnings. Both the tax code and the Social Security Act would change. Managers would owe Social Security and Medicare taxes on that money.

Fund managers' lower dividend rate — those dividends taxed as regular income

Dividends passed to a manager's profit stake would no longer count as qualified dividends. The lower rate on them would end.

Fund managers' small-business stock tax break — gone for their profit share

Some gains on small business stock can be left out of taxable income today. That break would not apply to gain tied to a manager's profit stake.

Fund managers' stake-sale tax break — gains taxed as ordinary income

Selling the profit stake would bring ordinary income, not an investment gain. That covers sales after the bill becomes law. Passing the stake on at death would not erase the tax. The heirs would owe it.

Corporate Benefits

Exemption for domestic corporations — they keep the lower tax rate

Profit shares that flow to a regular U.S. corporation would be left out of the new rule. Blank-check firms known as SPACs would not get that break.

Listed fund firms' lower-tax structure — could face corporate tax after 10 years

Publicly traded partnerships skip corporate tax if most of their income is of an approved kind. Carried interest would stop counting as approved. That change would wait 10 years.

Targeted & Unrelated Provisions

Carve-out for family investment partnerships — related partners' shares still qualify

To keep the lower rate on their own cash, managers would have to give outside investors the same deal. Family partnerships would not have to meet that test. They must not offer their services to the public.

Transparency & Accountability

Penalty for avoiding the new rule — doubled to 40% of underpayment

An inaccurate tax underpayment usually brings a 20% penalty. It would double to 40% for steps taken to get around this rule. The reasonable-cause excuse would be harder to claim.

More about this bill

Investment fund managers would pay higher taxes on their cut of fund profits. That cut is called carried interest. Today it is usually taxed as a long-term investment gain. The top rate on those gains is 20%. The bill would tax it like wages, at rates up to 37%. Managers would also owe self-employment tax on it. That tax pays for Social Security and Medicare. Your own taxes would not change. The rule would reach people who advise a fund, or buy and sell what it owns. That takes in private equity, hedge funds, and real estate funds. Sponsors of blank-check firms, known as SPACs, would be covered too. A current rule already taxes this pay like wages when the fund holds an asset three years or less. The bill drops that three-year test and covers the rest. Cash a manager puts in from their own pocket would still get the lower rate. That holds only if outside investors get the same deal. Domestic corporations would be exempt from the change. So would family investment partnerships, under an easier test. Selling the profit stake itself would count as ordinary income. Passing it on at death would not wipe out that tax. A 40% penalty would hit underpayments that come from steps taken to avoid the rule. Most of this would start with tax years ending after the bill becomes law. One change for publicly traded fund firms would wait 10 years.

Congressional Summary

Carried Interest Fairness Act of 2025 This bill taxes income from carried interest at ordinary income tax rates and makes other changes related to carried interest. (Some exceptions apply.) As background, a general partner in a private equity firm or hedge fund (typically structured as a partnership) generally receives a share of the profits from the assets managed by the general partner (known as carried interest). Under current law, carried interest is characterized (for federal tax purposes) as an interest in a partnership’s capital and, thus, taxed at capital gains tax rates (which may be lower than the applicable ordinary income tax rates). Under the bill, net capital gain and loss attributable to carried interest is recharacterized as ordinary income and loss and, thus, taxed at ordinary income tax rates. (Some exceptions apply.) The bill also treats as ordinary the money (or fair market value of property) received by a partner in a sale or exchange of carried interest. (Thus, the bill extends what is known as the hot asset rule to include carried interest.) Further, the bill deems distributions of carried interest by a partnership in exchange for interest in other partnership property a sale or exchange of such property and, thus, requires the partner to recognize ordinary gain on the distributed carried interest. Finally, the bill imposes self-employment taxes on carried interest income.

Details

Congress: 119th
Chamber: Senate
Status: summarized
Action: Introduced in Senate
Action Date: 2025-02-06
Date Added: 2026-06-08
Source: Congress.gov →

Like reading a bill in plain English?

We're building an app that does this for every bill in Congress and lets you tell your reps how you want them to vote. We're a small team getting ready to launch, and we're trying to show investors that real people want this. Be one of them. Help us get it built. Leave your email and we'll tell you the moment the app is ready.