Among the changes in the One, Big, Beautiful Bill Act (OBBBA) 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 OBBBA 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 OBBBA 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-OBBBA version of the IRC, GILTI is still GILTI and the OBBBA changes should 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-OBBBA version of the IRC, GILTI is now NCTI. The new computation rules and the 40% IRC 250 should deduction apply. But remember, the OBBBA’s foreign tax creditability increase will not provide relief at the state level because most states do not allow foreign tax credits!