Senate bill would tax carried interest as ordinary income, not capital gains

What does this do?

S 445 would require investment fund managers to pay taxes on their carried interest income at the ordinary income tax rate rather than the lower long-term capital gains rate. The bill also makes that income subject to self-employment taxes. Profits from money a manager personally invested would still qualify for standard investment tax treatment.

Who does it affect?

The bill directly affects managers at private equity firms, hedge funds, venture capital funds, and real estate investment partnerships who receive carried interest. Everyday workers and ordinary investors are not affected by the change.

Why does it matter?

Under current law, fund managers can claim their profit shares qualify for the lower capital gains rate because income flows through a partnership structure. This bill treats that income as compensation for services performed rather than a return on personal investment, closing that arrangement.

What does it cost, and who pays?

• Up to 40% penalty for evasion
• Managers pay self-employment taxes
• Personal investment profits unaffected