IRS Trust Tax Rates: Brackets, NIIT, and Distributions

IRS trust tax rates for 2026 climb fast: a non-grantor trust pays 10% on the first $3,300 of ordinary income, jumps to 24% above that, hits 35% past $11,700, and reaches the top 37% rate on anything over $16,000. An individual filer doesn’t reach 37% until taxable income passes roughly $640,000. That compression is deliberate, and it drives almost every tax decision a trustee makes.

Which Trusts Actually Pay These Rates

The compressed brackets only apply to non-grantor trusts. In a grantor trust, the person who created it holds enough control that the IRS ignores the trust as a separate taxpayer. All income flows through to the grantor’s Form 1040 and is taxed at individual rates.

A non-grantor trust is a separate taxpayer. The trustee files Form 1041 each year and pays tax on any income the trust keeps rather than distributing.¹ Everything below applies to that non-grantor category.

2026 Ordinary Income Brackets

For the 2026 tax year, the ordinary income brackets for estates and non-grantor trusts are:²

10% on taxable income up to $3,300
24% on taxable income from $3,301 to $11,700
35% on taxable income from $11,701 to $16,000
37% on taxable income above $16,000

There is no 12%, 22%, or 32% bracket. The rate jumps from 10% straight to 24%, so even modest retained income is taxed aggressively. The thresholds are adjusted for inflation each year under Revenue Procedure 2025-32.³

2026 Capital Gains Rates for Trusts

Long-term capital gains and qualified dividends inside a trust follow their own schedule, and it compresses just as fast:²

0% on gains up to $3,300
15% on gains from $3,301 to $16,250
20% on gains above $16,250

An individual doesn’t reach the 20% capital gains rate until over $545,000 in taxable income. A trust crosses that threshold at $16,250. Trustees weighing a sale of appreciated assets often need to compare selling inside the trust against distributing the asset to a beneficiary who would face a lower rate.

NIIT and AMT Stacked on Top

Two federal taxes can layer on top of the ordinary and capital gains rates.

Net Investment Income Tax

The 3.8% Net Investment Income Tax applies to whichever is smaller: the trust’s undistributed net investment income, or the amount by which the trust’s adjusted gross income exceeds the starting point of the top ordinary bracket.⁴ For 2026 that threshold is $16,000, so a trust with investment income and AGI above $16,000 will owe the surtax.² Combined with the 37% top rate, retained ordinary investment income can be taxed at an effective 40.8%. Individual beneficiaries don’t face NIIT until $200,000 (single) or $250,000 (married filing jointly), which is why distributing investment income is such a common response.

Alternative Minimum Tax

Trusts and estates are also subject to AMT. For 2026, the AMT exemption for trusts and estates is $31,400. The AMT rate is 26% on the first $244,500 of alternative minimum taxable income above the exemption, and 28% on amounts beyond that.³ AMT rarely bites a trust that distributes most of its income, but it can surface with tax-exempt bonds or incentive stock options.

Distributions: The Main Way to Lower the Rate

Distributing income to beneficiaries is the most powerful lever a trustee has. When a trust distributes income, it claims a distribution deduction on Form 1041, which removes that income from the compressed brackets. The beneficiary reports the income on their personal return at their own rates, which are almost always lower.

The distribution deduction is capped by the trust’s Distributable Net Income for the year. DNI is essentially the trust’s net accounting income and serves as a ceiling on how much can shift from the trust to its beneficiaries. Schedule K-1 tells each beneficiary what they received and breaks the income down by type: interest, dividends, capital gains, and other categories.⁵

The 65-Day Rule

Trustees don’t always know the trust’s final income figures until after year-end. The 65-day rule gives them a cushion: distributions made within the first 65 days of the new year can be treated as if made on the last day of the prior tax year.⁶ A trustee who realizes in February that the trust retained more income than intended can still distribute and elect to have the payment count against the prior year. The election applies only to the year for which it’s made, and the amount can’t exceed the trust’s income or DNI for that year. For a calendar-year trust, the window closes around March 6. A lot of tax savings get left on the table when trustees don’t think about distributions until the return is being prepared.

Exemptions and Deductions That Reduce the Base

Before the brackets do their work, a trust can shrink its taxable income through a personal exemption and administrative deductions.

Personal Exemption

Every non-grantor trust gets a personal exemption, and the amount depends on the trust type:⁷

A simple trust, which must distribute all income annually and doesn’t distribute principal or make charitable contributions, gets $300.
A complex trust, which can accumulate income, distribute principal, or make charitable gifts, gets $100.
A qualified disability trust gets $5,300 for 2026, not subject to phaseout.²

The $300 and $100 exemptions barely register against the compressed brackets. The disability trust exemption is meaningful, shielding the first $5,300 of income from tax entirely.

Administrative Expenses

Trusts can deduct costs of administering the trust, including trustee fees, attorney fees, accounting fees, and certain investment costs. Section 67(e) draws the key line: only costs that would not have been incurred if the property were not held in a trust are fully deductible as above-the-line deductions.⁸

That distinction matters because the Tax Cuts and Jobs Act suspended miscellaneous itemized deductions for individuals, and the suspension was made permanent. Trust-specific administrative costs survive because they’re above-the-line rather than miscellaneous itemized. Trustee compensation, tax preparation fees for Form 1041, and legal fees for trust administration typically qualify. Investment management fees are a grayer area, because an individual would incur those costs outside a trust too. Expenses allocable to tax-exempt income cannot be deducted on the income tax return at all.⁹

Filing Thresholds, Deadlines, and Penalties

A non-grantor trust must file Form 1041 if it has any taxable income for the year, gross income of $600 or more regardless of taxable income, or a beneficiary who is a nonresident alien.⁷ The $600 threshold is low enough that nearly any trust holding income-producing assets will file.

Trusts must use a calendar tax year, unlike estates.¹⁰ Form 1041 is due April 15 of the year following the tax year.¹¹ Trustees who need more time file Form 7004 for an automatic extension.¹²

Estimated Tax

A trust that expects to owe $1,000 or more for the year, after withholding and credits, must make quarterly estimated tax payments.² Given how quickly the compressed brackets generate tax, most trusts with meaningful retained income cross this threshold. Underpayment triggers a penalty calculated on each underpayment for the number of days it remains unpaid.

Late Filing and Late Payment

Missing the filing deadline carries a penalty of 5% of the unpaid tax per month or partial month, up to 25%. The separate failure-to-pay penalty runs at 0.5% per month.¹³ Interest accrues on both. A trustee who can’t pay the full balance should still file on time; the filing penalty is ten times the payment penalty on a monthly basis.

1
Internal Revenue Service. About Form 1041, U.S. Income Tax Return for Estates and Trusts
2
Internal Revenue Service. 2026 Form 1041-ES – Estimated Income Tax for Estates and Trusts
3
Internal Revenue Service. Revenue Procedure 2025-32
4
Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax
5
Internal Revenue Service. Instructions for Schedule K-1 (Form 1041) for a Beneficiary Filing Form 1040 or 1040-SR
6
eCFR. 26 CFR 1.663(b)-1 – Distributions in First 65 Days of Taxable Year
7
Internal Revenue Service. 2025 Instructions for Form 1041 and Schedules A, B, G, J, and K-1
8
Office of the Law Revision Counsel. 26 U.S. Code 67 – 2-Percent Floor on Miscellaneous Itemized Deductions
9
Internal Revenue Service. Publication 559 (2025), Survivors, Executors, and Administrators
10
Office of the Law Revision Counsel. 26 U.S. Code 644 – Taxable Year of Trusts
11
Internal Revenue Service. Forms 1041 and 1041-A – When to File
12
Internal Revenue Service. Form 7004 – Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns
13
Internal Revenue Service. Failure to File Penalty