Congress moves to tax investment managers' profits like ordinary income
H.R. 1091 — Carried Interest Fairness Act of 2025 · Filed by Marie Gluesenkamp Perez (D-WA) · 2 cosponsors · Introduced Feb 6, 2025 · Referred to committee
Your members of Congress
Enter a ZIP to see where your representative and both senators stood on this bill.
Looked up on this device — your ZIP is never stored on our servers.
What it does
This bill reclassifies 'carried interest'—the share of profits that investment fund managers receive as compensation for managing other people's money—from capital gains (taxed at lower rates) to ordinary income (taxed at higher rates). It creates narrow exceptions for genuine capital contributions and family partnerships, but closes loopholes that allow managers to defer or avoid taxation on performance-based compensation. The bill also imposes a 40% penalty for underpayments and extends self-employment tax to carried interest income.
Why we flagged it
The bill's core mechanism is a straightforward tax reclassification: carried interest moves from preferential capital-gains treatment to ordinary income taxation. This is a direct revenue-raising and fairness measure targeting a specific tax shelter used by investment professionals. The operative language is dense but the policy intent is clear and unambiguous.
What the text implies
- Repeal of IRC Section 1061 (the existing carried-interest holding period rule) removes the current 3-year deferral mechanism entirely, accelerating taxation for all carried-interest holders retroactively.
- Extension of self-employment tax to carried interest income increases the effective tax rate on fund managers by an additional 15.3% (combined employer-employee Social Security and Medicare tax), compounding the ordinary-income reclassification.
The full analysis lists 5 implications of this text.
Who stands to gain
U.S. Treasury (revenue increase from reclassification and self-employment tax); Wage-earning workers (improved tax fairness relative to investment managers)