Among the changes in the One, Big, Beautiful Bill Act (OBBA) was the renaming of Global Intangible Low-Taxed Income (GILTI) to Net CFC Tested Income (NCTI). But the renaming is not the end of the story. The OBBA also permanently decreases the now-NCTI deduction from 50% to 40% beginning in 2026. (Under the Tax Cuts and Jobs Act ((TCJA)), the deduction was scheduled to be reduced to 37.5% in 2026, so the decrease is relatively favorable.) The OBBA also makes changes to computation of now-NCTI and increase the foreign tax creditability to 90%.
What does this mean for state income tax? Certain states tax a material portion of now-NCTI, some following the federal 250 deduction to reduce the effective state tax rate on NCTI.
In states that conform to the pre-OBBA version of the IRC, GILTI is still GILTI and the OBBA changes will not apply (this likely means that the 250 deduction is reduced to 37.5% in 2026 as instructed by TCJA).
In states that conform the post-OBBA version of the IRC, GILTI is now NCTI. The new computation rules and the 40% IRC 250 deduction apply. But remember, the OBBA's foreign tax creditability increase will not provide relief at the state level because most states do not allow foreign tax credits!
(1) In general.--Section 951A(a) is amended by striking ``global intangible low-taxed income'' and inserting ``net CFC tested income''.
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