If you own a controlled foreign corporation, the rule formerly known as GILTI, and now called Net CFC Tested Income (NCTI), is what taxes most of that company's everyday business profits on your U.S. return, every year, whether or not you take a distribution. The One Big Beautiful Bill Act reshaped this regime for 2026, and the changes cut in both directions: a smaller deduction and a broader base, but a more generous foreign tax credit. This guide explains how NCTI works now, what OBBBA changed, and how individual owners use the Section 962 election to keep the bill manageable.
What Is GILTI / NCTI?
NCTI is the category of a CFC's active business income that U.S. shareholders must include currently, designed to ensure that U.S. owners pay at least a minimum level of U.S. tax on foreign operating profits. Introduced in 2018 as GILTI and renamed Net CFC Tested Income under OBBBA for tax years beginning after December 31, 2025, it works alongside Subpart F income: Subpart F captures passive and related-party income, and NCTI sweeps in most of what is left.
Despite the original "intangible" label, NCTI has little to do with intellectual property. It is a formulaic minimum tax on a CFC's net income after a handful of exclusions. The starting point is each CFC's "tested income", its gross income minus allocable deductions, excluding Subpart F income, certain high-taxed income, and a few other items. Each U.S. shareholder then aggregates tested income across all their CFCs, nets it against tested losses, and includes the result.
How Is the GILTI / NCTI Tax Calculated in 2026?
For a corporate U.S. shareholder, the effective NCTI rate is about 12.6% before foreign tax credits: the 21% corporate rate applied to 60% of the inclusion after the 40% Section 250 deduction. The deemed-paid foreign tax credit then offsets most or all of the residual, so a CFC paying foreign tax around 14% or higher frequently owes little or no additional U.S. tax.
The mechanical steps are:
- Compute each CFC's tested income or tested loss (gross income less allocable deductions, excluding Subpart F and high-taxed income).
- Aggregate net tested income across all the shareholder's CFCs.
- Subtract the net deemed tangible income return. Through 2025 this was 10% of QBAI; for 2026 and later, OBBBA eliminated it, so this step is gone and the full net tested income is included.
- Apply the Section 250 deduction, now 40%, leaving 60% in the tax base.
- Apply the rate and the foreign tax credit, 21% corporate rate and a 90% deemed-paid credit for the foreign taxes attributable to the inclusion.
Worked Example: A 2026 Operating CFC
ExampleAssume a CFC has $1,000,000 of net tested income and paid $140,000 of foreign income tax (a 14% foreign rate), with a corporate U.S. shareholder making the relevant elections.
- NCTI inclusion: $1,000,000 (no QBAI reduction in 2026).
- Section 250 deduction (40%): $400,000, leaving $600,000 taxable.
- Pre-credit U.S. tax (21%): $126,000 (a 12.6% effective rate on the full $1,000,000).
- Section 78 gross-up and 90% deemed-paid credit: roughly $126,000 of creditable foreign tax (90% of $140,000), which can offset most or all of the $126,000.
Result: little to no residual U.S. tax. The same CFC under the pre-2026 rules (50% deduction, 10% QBAI exclusion, 80% credit) would have had a lower base but a less generous credit, so the net change depends heavily on how capital-intensive the business is.
What Did OBBBA Change About GILTI for 2026?
OBBBA made four headline changes to the GILTI/NCTI regime, all effective for tax years beginning after December 31, 2025. Together they broaden the base, trim the deduction, and improve the credit.
Who Wins and Who Loses From the 2026 Changes
Important- Capital-light businesses (services, software, consulting) are relatively better off. They had little QBAI to exclude, so losing the exemption costs them little, and they benefit from the higher 90% credit.
- Capital-intensive businesses (manufacturing, real estate operating companies, equipment-heavy ventures) are worse off. The repealed 10% tangible-asset return used to shelter a meaningful slice of their income, and that shelter is now gone.
- Owners in higher-tax countries benefit most from the credit increase to 90%, often wiping out residual U.S. tax.
- Owners in zero- or low-tax jurisdictions feel the full 12.6% corporate effective rate (or higher at individual rates without a 962 election), because there is little foreign tax to credit.
Do Individuals Pay GILTI / NCTI, and How Do They Reduce It?
Yes, individual U.S. shareholders are fully subject to NCTI, and without planning they get the worst version of it: taxation at ordinary individual rates with no Section 250 deduction and no credit for the CFC's corporate-level foreign taxes. The fix for most individual owners is the Section 962 election.
The Section 962 Election
A Section 962 election lets an individual be taxed on NCTI and Subpart F income as if they were a domestic C corporation for that income. The election delivers three benefits at once:
- The 21% corporate rate instead of rates up to 37%.
- The 40% Section 250 deduction, which individuals cannot otherwise claim.
- The 90% deemed-paid foreign tax credit for the CFC's foreign taxes.
The catch: when the previously taxed income is later distributed, it is taxed again as a dividend to the extent it exceeds the U.S. tax actually paid under the 962 election. For CFCs that reinvest earnings and pay reasonable foreign tax, the election is usually a clear win; for CFCs that distribute everything and pay little foreign tax, it is closer.
The High-Tax Exclusion
Income taxed by a foreign country at an effective rate above 90% of the top U.S. corporate rate (more than 18.9%) can be excluded from tested income under the GILTI/NCTI high-tax election. For CFCs operating in countries with corporate rates of 19% or higher, this can remove the income from NCTI entirely, though it must be coordinated with the Subpart F high-tax election and the Section 962 analysis because the choices interact.
How Do You Report GILTI / NCTI?
The NCTI computation lives across several forms that tie back to your main return:
- Form 8992 computes the net CFC tested income inclusion.
- Form 8993 computes the Section 250 deduction (NCTI and FDDEI).
- Form 5471 reports each CFC, its earnings and profits, and the tested income figures that feed Form 8992. See our Form 5471 filing guide.
- Form 1118 (corporations) or Form 1116 (individuals making a Section 962 election) claims the foreign tax credit.
Because NCTI aggregates across all of a shareholder's CFCs and depends on accurate earnings-and-profits and foreign-tax data, the quality of the CFC's books drives the quality of the result. Tested losses in one CFC offset tested income in another, so owners of multiple foreign companies should compute the regime on a combined basis.
Bottom Line
GILTI is now NCTI, and the 2026 OBBBA rules tax most of a CFC's active earnings to its U.S. shareholders at a corporate effective rate of about 12.6% before credits, with a smaller 40% deduction, no more tangible-asset exemption, and a more generous 90% foreign tax credit. For individual owners, the Section 962 election is usually the difference between a punitive ordinary-rate bill and a manageable one, and the high-tax exclusion can remove income earned in normal-tax countries entirely. The interactions between these elections are where real money is saved or lost.
If you own a controlled foreign corporation and want to understand your NCTI exposure under the new rules, whether to make a Section 962 election, or how the high-tax exclusion changes your result, our international tax and cross-border tax teams can run the numbers and prepare every required form. Have questions about GILTI or NCTI? Contact TS CPA for a free consultation. We respond within the same day.