Fiduciary Income Tax

Trust Tax Rates for 2026: The Most Compressed Brackets in the Code

A trust reaches the 37% federal bracket at $16,000 of retained income — a threshold an individual doesn’t hit until several hundred thousand. Here are the 2026 numbers, straight from Rev. Proc. 2025-32, and the mechanics that decide whether they apply.

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Quick Answer

For 2026 (Rev. Proc. 2025-32), estates and trusts pay 10% up to $3,300, 24% to $11,700, 35% to $16,000, and 37% above $16,000 of retained taxable income — plus the 3.8% NIIT on undistributed investment income above that same line. Income distributed to beneficiaries escapes these brackets and is taxed at each beneficiary’s own rates.

The 2026 brackets

Rate2026 taxable income (estates & trusts)
10%Up to $3,300
24%Over $3,300 up to $11,700
35%Over $11,700 up to $16,000
37%Over $16,000

Source: Rev. Proc. 2025-32. The thresholds index annually — the 37% line was $15,650 for 2025 — and these figures apply to income the entity keeps; distributed income is taxed to beneficiaries instead.

What the compression actually costs

Consider a trust that retains $50,000 of ordinary investment income in 2026. The first $16,000 climbs through the 10/24/35% bands; the remaining $34,000 is taxed at 37% — and, being retained investment income above the NIIT line, picks up 3.8% more. A beneficiary in the 22% bracket receiving that same $50,000 as a distribution would owe tens of thousands less on identical dollars. That gap — not the rates themselves — is the central planning fact of fiduciary taxation, and it is why the income distribution deduction is the most consequential line on Form 1041.

Three rate regimes on one return

  • Ordinary income — interest, rents, IRA distributions — uses the compressed brackets above.
  • Long-term gains and qualified dividends keep the preferential 0/15/20% rates with their own compressed breakpoints (current figures in the Schedule D (Form 1041) instructions). Gains usually stay with the trust as principal rather than passing to beneficiaries.
  • The 3.8% NIIT stacks on undistributed net investment income above the top-bracket threshold — $16,000 for 2026 — for an effective federal top rate of 40.8% on retained portfolio income.

And that is before state tax: 41 states plus DC layer their own fiduciary income tax on top, from Pennsylvania’s flat 3.07% to California’s 13%+ at the top.

The levers fiduciaries actually control

Distribute or retain is decided year by year: distributions carry income (up to DNI) out to Schedule K-1s and beneficiary rates; retention buys control at compressed-bracket prices. The 65-day rule (section 663(b)) extends the decision window into early the next year. An estate’s fiscal-year election shifts when beneficiaries feel the income. None of these are do-it-yourself decisions in complex situations — but knowing the brackets is what makes the professional conversation productive.

Compute it once, correctly

Prepare Form 1041 with the current-year rates applied automatically and e-file through the IRS MeF system.

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Trust rate FAQs

What are the trust tax brackets for 2026?
Per Rev. Proc. 2025-32, estates and non-grantor trusts pay 10% on taxable income up to $3,300, 24% from $3,300 to $11,700, 35% from $11,700 to $16,000, and 37% above $16,000. The rates are statutory; only the dollar thresholds adjust for inflation each year (the 37% line was $15,650 for 2025).
Why are trust brackets so compressed?
By design — Congress compressed fiduciary brackets so trusts could not be used to shelter income at low rates across many small taxpayers. An individual needs several hundred thousand dollars of income to reach 37%; a trust gets there at $16,000. The intended pressure valve is distribution: income passed to beneficiaries is taxed at their individual rates instead.
Do trusts pay the 3.8% net investment income tax?
Yes, and it bites early: the NIIT applies to undistributed net investment income above the dollar amount where the top trust bracket begins — $16,000 for 2026. A trust retaining investment income above that line effectively pays 37% plus 3.8%, or 40.8%, before any state tax.
How are trust capital gains taxed?
Long-term capital gains and qualified dividends keep their preferential 0%, 15%, and 20% rates, but with compressed breakpoints far below the individual thresholds — see the current Schedule D (Form 1041) instructions for the year’s exact figures. Note that capital gains are usually allocated to principal and taxed to the trust rather than carried out to beneficiaries, unless the governing document or fiduciary accounting says otherwise.
How do trusts avoid the top bracket?
Distribution timing. Income distributed to beneficiaries is deducted by the trust (the income distribution deduction) and taxed at each beneficiary’s own rates — often dramatically lower. The section 663(b) "65-day rule" lets a fiduciary treat distributions made in the first 65 days of the new year as made in the prior year, a January lever for managing the prior year’s bracket exposure. Distribution decisions have non-tax consequences too, so plan with a professional.

Related guides: Form 1041 overview, line-by-line instructions, due dates, grantor trusts (whose income skips these brackets entirely).

Disclaimer: Bracket thresholds index annually and rates can change by legislation — verify against the current revenue procedure and Form 1041 instructions before relying on them. This page is general information, not tax advice. TaxFilingCenter is an IRS-authorized e-file provider and does not provide legal or tax advice.

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