Carried Interest Fairness Act of 2025

Key Points

• This bill would reclassify the profits that investment fund managers earn from managing other people's money. Instead of paying the lower capital gains tax rate (currently up to 20%), these managers would pay ordinary income tax rates (up to 37%) on their carried interest. This targets private equity, hedge fund, and venture capital managers specifically.
• The bill specifically targets people whose work involves advising on investments, managing or acquiring assets, or arranging financing for investment partnerships. It carves out an exception for any capital the managers actually invest themselves, so only the profits-sharing portion (carried interest) gets taxed at higher rates.
• Fund managers would also have to pay self-employment taxes on this income, just like other business owners and self-employed workers do. Currently, carried interest is often exempt from Social Security and Medicare payroll taxes, which this bill would change.
• The bill includes a steep 40% penalty for anyone who tries to avoid these new rules through complicated accounting tricks or structures. It also repeals the existing Section 1061, which was a partial reform passed in 2017 that required a 3-year holding period for carried interest to qualify for capital gains rates.
• Domestic C corporations that hold investment services partnership interests are exempted from these new rules. The bill also provides a 10-year transition period for publicly traded partnerships before the new qualifying income rules take full effect.