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You own a piece of a company abroad, it had a profitable year, and you never took a dollar out of it. Then your preparer says you owe US tax on those profits anyway. That is GILTI, and Form 8992 is where you calculate it. For 2026 it even has a new name, so this is a good moment to understand what it is and what just changed.
Here is who owes it, how the form builds the number, the deductions and credits that shrink it, and how the 2025 law reshapes the math starting with your 2026 return.
GILTI stands for Global Intangible Low-Taxed Income, and despite the name it has little to do with intangibles. It is an anti-deferral rule: if you are a US shareholder of a controlled foreign corporation, you are taxed each year on your share of that company's income, whether or not it pays you anything. The point is to stop US owners from parking profits in low-tax countries indefinitely.
For tax years beginning after December 31, 2025, the rule gets renamed Net CFC Tested Income, or NCTI. The mechanics carry over, but the label and several of the numbers change, which matters because a lot of older guidance still says GILTI. You still report it on Form 8992, the US shareholder's calculation, and the inclusion flows onto your Form 1040 or corporate return.
The rule reaches US shareholders of a controlled foreign corporation, or CFC. You are a US shareholder if you own 10 percent or more of the foreign company by vote or value, and it is a CFC if US shareholders together own more than half of it. Hit both tests and GILTI is on your plate.
Individuals and corporations feel it very differently. A US C corporation gets a deduction that softens the rate sharply. An individual who owns a CFC directly gets no such break by default and is taxed at ordinary rates that run as high as 37 percent, which is why individual owners often reach for one of the elections covered below. If you already file Form 5471 for the foreign corporation, GILTI is the tax that the 5471 data was quietly feeding all along.
Form 8992 does not look at one company in isolation. It aggregates your share of tested income and tested loss across every CFC you own, so a profitable subsidiary and a loss-making one net against each other. From that aggregate, the form subtracts a routine return on tangible assets, the net deemed tangible income return, which is based on qualified business asset investment, or QBAI.
Whatever is left is your inclusion. The inputs come straight from each CFC's Form 5471, where Schedule I-1 reports the tested income, tested interest, and QBAI, so the two forms are joined at the hip. Schedule A of Form 8992 lays out the per-company figures, and members of a US consolidated group use Schedule B instead. Getting the reference identifiers to match across the 5471 and the 8992 is one of those small tie-outs that quietly decides whether the filing is clean.
The reason a US corporation does not pay full freight on GILTI is the Section 250 deduction, claimed on Form 8993. For 2025 it equals half of the inclusion, which drops a C corporation's effective rate on GILTI to about 10.5 percent, since 21 percent applied to the remaining half works out that way.
That deduction is the single biggest lever, and it is exactly what the 2025 law tightened. Individuals do not get Section 250 automatically, which is the core reason a direct individual owner faces a much heavier rate than a corporation on the same income. The fix for individuals is usually an election rather than a restructuring, and the two main options come next.
If your foreign company already paid tax abroad, you should not pay full US tax on top. Foreign tax credits address that, and for GILTI they come with a haircut. Under the 2025 rules, 80 percent of the related foreign taxes are creditable against the US tax on the inclusion, and those credits cannot be carried forward or back, so they are use-it-or-lose-it in the year.
The practical result is a breakeven foreign tax rate. Once your foreign company is taxed at a high enough local rate, the credits wipe out the US GILTI tax entirely. Below that rate, some US tax leaks through. The breakeven moves in 2026, which is one of the more taxpayer-friendly parts of the change.
The 2025 law made GILTI permanent and reset its numbers, effective for tax years beginning after December 31, 2025. Four changes matter, and they pull in different directions.
The Section 250 deduction falls from 50 percent to 40 percent, which raises the effective corporate rate from 10.5 percent to about 12.6 percent. The foreign tax credit improves, with 90 percent of foreign taxes now creditable instead of 80 percent, so foreign taxes of roughly 14 percent generally offset the US tax completely. The QBAI exclusion is eliminated, meaning there is no longer a routine return on tangible assets carved out, so a broader base of income runs through the calculation. And the rule now carries the NCTI name. Owners who leaned on QBAI to shelter income will feel the base widen, even as the better credit helps those operating in higher-tax countries.
For individual owners, the Section 962 election is the common move. It lets you be taxed on the inclusion as if you were a US corporation, which unlocks the Section 250 deduction and the corporate rate along with the foreign tax credit. The trade-off is that later distributions from the company can be taxed again, so it fits owners who reinvest more than they withdraw, and it deserves a year-by-year model rather than a set-and-forget choice.
The high-tax exception is the other lever. If your foreign company is taxed abroad above the relevant threshold, you can elect to exclude that income from the calculation entirely. The election is annual and all-or-nothing, applying to all your CFCs at once rather than letting you cherry-pick, and foreign taxes on excluded income cannot then be claimed as credits. With the base widening in 2026, some owners who never needed this exception will look at it for the first time.
GILTI is not one form, it is a chain: the CFC's Form 5471 feeds the tested income, Form 8992 computes the inclusion, Form 8993 applies the Section 250 deduction, and the result lands on your return. A weak link anywhere, a QBAI figure that does not tie, a reference ID that does not match, a foreign tax not properly sourced, throws off the whole result, and the 2026 rules make sloppy 2025-style workpapers actively wrong.
That end-to-end discipline is the kind of work Madras Accountancy handles for US CPA firms, building the 5471-to-8992-to-8993 chain against the current IRS instructions while your team keeps review and client strategy. For owners weighing whether a US holding company or a Section 962 election is the smarter structure, the fractional CFO support ties the tax to the bigger picture. If you want to talk through your firm's international workload, you can reach out here. This is general information, not tax advice, so confirm the specifics for any client with their preparer.
1. What is GILTI, or NCTI? It is a US tax on a shareholder's share of a controlled foreign corporation's income, charged annually whether or not the company distributes anything. It exists to stop profits from being deferred in low-tax countries. For tax years beginning after December 31, 2025, it is renamed Net CFC Tested Income (NCTI), with the same core mechanics.
2. Who has to file Form 8992? Any US shareholder of a controlled foreign corporation, meaning a US person who owns 10 percent or more of a foreign company that is more than half owned by US shareholders. The form calculates your inclusion and attaches to your income tax return.
3. How is the GILTI or NCTI inclusion calculated? Form 8992 aggregates your share of tested income and tested loss across all your CFCs, then subtracts a routine return on tangible assets based on QBAI. The remainder is your inclusion. The inputs come from each company's Form 5471, Schedule I-1.
4. What is the effective tax rate on GILTI? For a US corporation, the Section 250 deduction puts the effective rate near 10.5 percent for 2025. Starting in 2026 the deduction drops to 40 percent, raising the effective corporate rate to about 12.6 percent. Individuals without an election pay ordinary rates up to 37 percent.
5. What changed for 2026? GILTI becomes NCTI. The Section 250 deduction falls from 50 percent to 40 percent, the effective corporate rate rises to about 12.6 percent, the foreign tax credit improves from 80 percent to 90 percent, and the QBAI exclusion is eliminated so more income is taxed.
6. What is the Section 962 election? It lets an individual be taxed on the inclusion as though they were a US corporation, unlocking the Section 250 deduction, the corporate rate, and the foreign tax credit. The catch is that later distributions from the company may be taxed again, so it suits owners who reinvest rather than withdraw.
7. Can foreign tax credits offset GILTI or NCTI? Yes, with a haircut. For 2025, 80 percent of the related foreign taxes are creditable, rising to 90 percent in 2026. The credits cannot be carried to another year, and above a foreign tax rate of roughly 14 percent for 2026 they generally offset the US tax entirely.
8. How does Form 8992 relate to Forms 5471 and 8993? They work as a chain. Form 5471 reports the foreign corporation and supplies tested income on Schedule I-1, Form 8992 computes the inclusion, and Form 8993 claims the Section 250 deduction. The inclusion then flows to your Form 1040 or 1120.
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