Updated October 5, 2026. Quick answer: Sometimes. New York taxes a trust as a resident when it is irrevocable and holds the property of “a person domiciled in New York State when such property was transferred” to it, but a resident trust with all nonresident trustees, no New York corpus and no New York source income owes no New York tax.
How New York treats trust income
| Item | What the documents say |
|---|---|
| Treatment | New York taxes the income of a trust that is a resident trust, and a nonresident trust only on New York source income. The instructions are for Form IT-205-I (2025). |
| Who counts as a resident trust | A trust is resident if an irrevocable trust holds property of a person domiciled in New York when it was transferred, or if a decedent domiciled in New York created it by will. The source says: “The residence of the fiduciary does not affect the status” as resident or nonresident. |
| Exempt resident trusts | Under Tax Law section 605(b)(3)(D), a resident trust owes no New York income tax if three conditions are met. The first is: “All the trustees are domiciled in a state other than New York.” The other two are that the entire corpus is located outside New York and that all income and gains come from sources outside New York. |
| Rate on trust income | Trusts use the New York State tax rate schedule on the instructions, which runs from 4% on the lowest bracket to 10.90% on the highest bracket for 2025. |
| Distribution deduction | The income distribution deduction on Form IT-205 follows the federal figure, as the instructions say the amount “is equal to the amount you entered on federal Form 1041”, Schedule B, line 15. |
| Nonresident trusts | A nonresident trust files only if it “had New York source income and had New York adjusted gross income”, so it is taxed on New York source income, such as income from real property located in New York. |
| Accumulation distributions | A beneficiary whose New York source income includes an accumulation distribution can claim a credit for New York income tax the trust paid and for tax another state imposed on the trust. |
| Return to file | The fiduciary of a resident trust files Form IT-205 if the trust “required to file a federal income tax return for the tax year” or had any New York taxable income. |
A $10,000 example
The tax on $10,000 of taxable income a trust keeps depends on the bracket it lands in. Taxed wholly at the lowest printed rate, 4%, the tax is computed as $10,000 x 4% = $400; taxed wholly at the highest, 10.90%, it is computed as $10,000 x 10.90% = $1,090. The state’s own schedule decides which applies. Federal tax on the trust’s income still applies.
Income the trust passes out to a beneficiary is handled as the distribution deduction row above describes.
What changes in 2026
The latest documents read print no 2026 change to how trust income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The federal brackets a trust faces are laid out in trust tax brackets versus individual brackets, and capital gains that a trust keeps are covered in capital gains stay in the trust. The IRS explains the federal return in the About Form 1041 page.
Related: how New York taxes retirement income, whether New York taxes pensions, what a living trust costs in New York, trust income tax by state, and federal trust tax brackets.
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Answer againSources
- Instructions for Form IT-205, Fiduciary Income Tax Return (IT-205-I, 2025) (New York State Department of Taxation and Finance): https://www.tax.ny.gov/pdf/current_forms/it/it205i.pdf
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.