Taxes on unearned income

(a) Modifications to tax on net investment income (1) In general Section 1411 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (f) Additional amount for certain high income individuals (1) Inclusion of specified net income (A) In general In the case of any individual whose modified adjusted gross income for the taxable year exceeds the high income threshold amount, subsection (a)(1) shall be applied by substituting the greater of specified net income or net investment income for net investment income in subparagraph (A) thereof. (B) Phase-in of increase The increase in the tax imposed under subsection (a)(1) by reason of the application of subparagraph (A) (determined before application of paragraph (2)) shall not exceed the amount which bears the same ratio to the amount of such increase (determined without regard to this paragraph) as— (i) the excess described in subparagraph (A), bears to (ii) $100,000 (1/2 such amount in the case of a married taxpayer (as defined in section 7703) filing a separate return). (2) Additional rate bracket In the case of any individual whose modified adjusted gross income for the taxable year exceeds the high income threshold amount, the amount of tax imposed under subsection (a)(1) shall be increased by an amount equal to 13.6 percent of the lesser of— (A) the greater of the specified net income or net investment income for the taxable year, or (B) the excess (if any) of— (i) the modified adjusted gross income for such taxable year, over (ii) the high income threshold amount. (3) Definitions (A) High income threshold amount For purposes of this subsection, the term high income threshold amount means— (i) except as provided in clause (ii) or (iii), $400,000, (ii) in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $500,000, and (iii) in the case of a married taxpayer (as defined in section 7703) filing a separate return, 1/2 of the dollar amount determined under clause (ii). (B) Specified net income For purposes of this section, the term specified net income means net investment income determined— (i) without regard to the phrase other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2), in subsection (c)(1)(A)(i), (ii) without regard to the phrase described in paragraph (2) in subsection (c)(1)(A)(ii), (iii) without regard to the phrase other than property held in a trade or business not described in paragraph (2) in subsection (c)(1)(A)(iii), (iv) without regard to paragraphs (2), (3), and (4) of subsection (c), and (v) by treating paragraphs (5) and (6) of section 469(c) (determined without regard to the phrase To the extent provided in regulations, in such paragraph (6)) as applying for purposes of subsection (c) of this section.. (b) Application to trusts and estates Section 1411(a)(2) of the Internal Revenue Code of 1986 is amended— (1) by striking 3.8 percent and inserting 17.4 percent, and (2) in subparagraph (A) thereof, by striking undistributed net investment income and inserting the greater of undistributed specified net income or undistributed net investment income. (c) Clarifications with respect to determination of net investment income (1) Certain exceptions Section 1411(c)(6) of the Internal Revenue Code of 1986 is amended to read as follows: (6) Special rules Net investment income shall not include— (A) any item taken into account in determining self-employment income for such taxable year on which a tax is imposed by section 1401(b), (B) wages received with respect to employment on which a tax is imposed under section 3101(b) (determined without regard to section 3101(c)) or 3201(a) (including amounts taken into account under section 3121(v)(2)), and (C) wages received from the performance of services earned outside the United States for a foreign employer.. (2) Net operating losses not taken into account Section 1411(c)(1)(B) of such Code is amended by inserting (other than section 172) after this subtitle. (3) Inclusion of certain foreign income (A) In general Section 1411(c)(1)(A) of such Code is amended by striking and at the end of clause (ii), by striking over at the end of clause (iii) and inserting and, and by adding at the end the following new clause: (iv) any amount includible in gross income under section 951, 951A, 1293, or 1296, over. (B) Proper treatment of certain previously taxed earnings and profits Section 1411(c) of such Code is amended by adding at the end the following new paragraph: (7) Certain earnings and profits of foreign corporations (A) In general Except as otherwise provided by the Secretary, a distribution of earnings and profits that is not treated as a dividend for purposes of chapter 1 by reason of section 959(d) or section 1293(c) shall not be treated as a dividend for purposes of this section. (B) Regulations and other guidance The Secretary shall issue regulations or other guidance providing for the treatment of distributions by a foreign corporation after December 31, 2025, of earnings and profits of such foreign corporation which accrued before such date, but which have not been previously subject to tax under this section.. (d) Transfers of revenues to Old-Age and Survivors, Disability Insurance, and Federal Hospital Insurance Trust Funds (1) Federal Old-Age and Survivors Trust Fund (A) In general Section 201(a) of the Social Security Act (42 U.S.C. 401(a)) is amended— (i) by striking 100 per centum of, (ii) by inserting 100 percent of before the taxes each place it appears in paragraphs (1), (2), (3), and (4), and (iii) by striking and at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting; and, and by inserting after paragraph (4) the following new paragraph: (5) 71.3 percent of the taxes imposed by section 1411 of the Internal Revenue Code of 1986 for any taxable year beginning after December 31, 2025, as determined by the Secretary of the Treasury or the Secretary's delegate based on tax returns under subtitle F of such Code, less the amounts specified in paragraph (3) of subsection (b).. (B) Conforming amendment The fourth sentence of section 201(a) of such Act (42 U.S.C. 401(a)) is amended by striking clauses (3) and (4) each place it appears and inserting paragraphs (3), (4), and (5). (2) Federal Disability Insurance Trust Fund Section 201(b) of the Social Security Act (42 U.S.C. 401(b)) is amended— (A) by striking 100 per centum of, and (B) by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting; and, and by inserting after paragraph (2) the following new paragraph: (3) 10.3 percent of the taxes imposed by section 1411 of the Internal Revenue Code of 1986 for any taxable year beginning after December 31, 2025, as determined by the Secretary of the Treasury or the Secretary's delegate based on tax returns under subtitle F of such Code.. (3) Federal Hospital Insurance Trust Fund Section 1817(a) of the Social Security Act (42 U.S.C. 1395i(a)) is amended— (A) by striking 100 per centum of, (B) by inserting 100 percent of before the taxes each place it appears in paragraphs (1) and (2), and (C) by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting; and, and by inserting after paragraph (2) the following new paragraph: (3) 28.7 percent of the taxes imposed by section 1411 of the Internal Revenue Code of 1986 for any taxable year beginning after December 31, 2025, as determined by the Secretary of the Treasury or the Secretary's delegate based on tax returns under subtitle F of such Code.. (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2025.