Form 1041 Schedule G Instructions: Tax Computation, Credits, and Payments

Schedule G of Form 1041 is where the fiduciary of an estate or trust totals the tax owed for the year. Part I brings together the regular income tax, alternative minimum tax, credits, and any additional taxes such as the net investment income tax or the ESBT tax; Part II records payments already made. The total on Part I, line 9 carries to page 1 of Form 1041, line 24.¹ These Form 1041 Schedule G instructions walk each line in order.

Most of the underlying arithmetic happens on other forms and worksheets. Schedule G is where the results converge, so before starting it you generally need Schedule D or the Qualified Dividends Tax Worksheet, Schedule I for AMT, Form 8960 for NIIT, the ESBT Tax Worksheet if applicable, and any credit forms.²

Line 1a: Regular Income Tax

Line 1a is the regular tax on the entity’s taxable income. If the estate or trust has no net capital gains or qualified dividends, use the tax rate schedule in the Form 1041 instructions. For taxable years beginning in 2026, the brackets are:³

10% on taxable income up to $3,300
24% on income over $3,300 but not over $11,700 ($330 plus 24% of the excess over $3,300)
35% on income over $11,700 but not over $16,000 ($2,346 plus 35% of the excess over $11,700)
37% on income over $16,000 ($3,851 plus 37% of the excess over $16,000)

The brackets are compressed. The top 37% rate applies at just $16,000 of taxable income, while an individual filer doesn’t reach 37% until income exceeds $626,350. That gap is the practical reason many trusts distribute income to beneficiaries rather than retain it.

If the entity has net capital gains or qualified dividends, don’t use the rate schedule directly. Use Part V of Schedule D (Form 1041) or the Qualified Dividends Tax Worksheet in the Form 1041 instructions so the preferential rates apply. The result still goes on line 1a.²

Line 1c: Alternative Minimum Tax

Line 1c reports the AMT figured on Schedule I (Form 1041). The AMT under Internal Revenue Code Section 55 ensures the entity pays at least a minimum amount of tax when regular deductions and preferences reduce taxable income significantly.⁴

Schedule I starts with regular taxable income, adds back preferences and adjustments (recalculated depreciation is common), and modifies the income distribution deduction to arrive at alternative minimum taxable income. For 2026, the AMT exemption for estates and trusts is $31,400. It phases out by 25 cents on the dollar once AMTI exceeds $104,800 and disappears entirely at $167,600.³

After the exemption, the AMTI is taxed at 26% up to a threshold that adjusts each year and 28% above it. For 2025 that threshold was $239,100; the 2026 figure appears in the updated Schedule I instructions when released.⁵ AMT only matters if it exceeds the regular tax. Enter the amount from Schedule I, line 54 on Schedule G, line 1c.²

Add line 1a and line 1c (plus any 1b entry required by the instructions) to get line 1e, the combined tax before credits.

Lines 2a Through 2e: Credits

Lines 2a through 2d apply available credits that reduce tax dollar-for-dollar. Line 2e is the total, which you subtract from line 1e to get line 3.²

Line 2a, foreign tax credit. Attach Form 1116 and enter the allowable credit if the entity paid income tax to another country on foreign-source income.
Line 2b, general business credit. Enter only the estate’s or trust’s own share from Form 3800. Amounts allocated to beneficiaries don’t belong here.
Line 2c, credit for prior year minimum tax. If AMT was paid in an earlier year and unused minimum tax credit remains, attach Form 8801.
Line 2d, bond credits. Report tax credit bonds from Form 8912, and remember to include the same amount in interest income on the return.

Line 4: ESBT Tax

If the trust is an electing small business trust holding S corporation stock, the S portion is taxed as if it were a separate trust and its tax goes on Schedule G, line 4. The mechanics differ sharply from ordinary trust taxation:⁶

The S portion includes only income, losses, deductions, and credits from the S corporation, plus any gain or loss on the S corporation stock.
The tax rate is a flat 37%, not the graduated schedule. Qualified dividends and capital gains still receive their preferential rates.
No income distribution deduction and no personal exemption amount is allowed against the S portion.
The S portion is not entitled to an AMT exemption.

Figure the tax on the ESBT Tax Worksheet in the Form 1041 instructions and carry line 17 of that worksheet to Schedule G, line 4. When computing tax and distributable net income on the non-S portion of the trust, disregard the S corporation items entirely.

Line 5: Net Investment Income Tax

Line 5 reports the 3.8% net investment income tax figured on Form 8960. For an estate or trust, the NIIT applies to the lesser of net investment income or the excess of adjusted gross income over the threshold where the highest bracket begins. For 2026, that threshold is $16,000.³

Net investment income includes interest, dividends, capital gains, rental income, royalties, and income from passive activities. It excludes wages, self-employment income, and distributions from qualified retirement plans. Enter the amount from Form 8960, line 21 on Schedule G, line 5.⁷ Because the threshold is so low, retained investment income almost always draws NIIT at the entity level.

Line 8: Accumulation Distribution Tax

Line 8 is where tax on an accumulation distribution, figured on Form 4970, is entered. Write “From Form 4970” and the amount to the left of the entry space.⁸

Most domestic trusts can skip this line. The throwback rule was largely repealed for domestic trusts by the Taxpayer Relief Act of 1997 and now applies only to two narrow categories:⁹

Domestic trusts that were previously treated as foreign trusts at any time.
Trusts created before March 1, 1984, unless the trust would not be aggregated with other trusts under the related-trust rules.

For trusts that do fall within the rule, an accumulation distribution occurs when the distribution exceeds current-year distributable net income, with the excess treated as coming from income accumulated in prior years. Schedule J (Form 1041) allocates that excess across the throwback years, and the trustee gives the beneficiary a completed Part IV of Schedule J so the beneficiary can prepare Form 4970.

Form 4970 uses the partial tax method under Section 667: the beneficiary picks three of the five preceding tax years, dropping the highest and lowest, and computes the tax increase for each by adding a share of the distribution to that year’s income. The average increase multiplied by the number of throwback years produces the potential tax, reduced by a credit for income taxes the trust already paid on the accumulated income.¹⁰ The final Form 4970 amount goes to Schedule G, line 8 when the trust computes the tax, or to the beneficiary’s return when the beneficiary files Form 4970.

Line 9 Total and Part II Payments

Add lines 3 through 8 to get line 9, the total tax. That figure carries to Form 1041, page 1, line 24.¹

Part II tallies what has already been paid: estimated tax payments made during the year, any amount paid with the Form 7004 extension request, and federal income tax withheld from income reported to the estate or trust on Forms 1099 or Schedule K-1. The difference between line 9 and the Part II total is the balance due or the refund.²

Common Schedule G Errors and Penalties

Because line 9 flows straight to the total tax, any Schedule G mistake understates or overstates the liability. The three errors that show up most often are skipping Schedule I when the AMT is required, omitting the NIIT on line 5, and figuring the ESBT tax with graduated rates instead of a flat 37%.

The accuracy-related penalty under Section 6662 is 20% of the underpayment attributable to a substantial understatement of income tax or negligence, rising to 40% for gross valuation misstatements or undisclosed foreign financial asset understatements.¹¹ Interest also runs from the original due date until the balance is paid; the IRS underpayment rate for the second quarter of 2026 is 6%, after 7% in the first quarter.¹²

1
Internal Revenue Service. U.S. Income Tax Return for Estates and Trusts
2
Internal Revenue Service. Instructions for Form 1041 and Schedules A, B, G, J, and K-1 (2025)
3
Internal Revenue Service. Rev. Proc. 2025-32
4
Office of the Law Revision Counsel. 26 USC 55 Alternative Minimum Tax Imposed
5
Internal Revenue Service. Instructions for Schedule I (Form 1041) (2025)
6
Internal Revenue Service. 2025 Instructions for Form 1041 and Schedules A, B, G, J, and K-1
7
Internal Revenue Service. Instructions for Form 8960 (2025)
8
Internal Revenue Service. Tax on Accumulation Distribution of Trusts – Form 4970
9
Office of the Law Revision Counsel. 26 USC 665 Definitions Applicable to Subpart D
10
Office of the Law Revision Counsel. 26 USC 667 Treatment of Amounts Deemed Distributed by Trust in Preceding Years
11
Office of the Law Revision Counsel. 26 USC 6662 Imposition of Accuracy-Related Penalty on Underpayments
12
Internal Revenue Service. Internal Revenue Bulletin 2026-08