Updated October 5, 2026. Quick answer: Yes. Iowa taxes trust income at a single rate of 3.8% for tax year 2025, and Iowa Code 422.6 says that for estates and trusts “the rates are the same as those applicable to individuals.” The fiduciary files Form IA 1041.
How Iowa treats trust income
| Item | What the documents say |
|---|---|
| Treatment | Iowa taxes estates and trusts on their taxable income, and the fiduciary files the return whether the income is taxable to the estate or trust or to the beneficiaries. Iowa Code 422.6 says the fiduciary “shall make the return of income for the estate or trust” for which the fiduciary acts. |
| Who counts as a resident trust | The IA 1041 instructions give situs rules rather than one residence test: a testamentary trust follows the decedent’s residence at death, and a grantor trust follows the grantor’s or owner’s residence. The Schedule C instructions refer to a trust whose situs is outside Iowa for the full year or part of the year, which marks the line between an Iowa trust and a nonresident trust, and for another trust that is not subject to a court’s control the instructions say its situs “depends on the relevant facts of the case”, including the residence of the trustees, the location of the principal office where the trust is administered and the location of the evidence of its intangible assets. |
| Rate on trust income | For tax year 2025 the IA 1041 instructions print one rate and a worked example of $24,000 at 3.8% producing $912. In the source’s words, “For tax year 2025, Iowa will have a single tax rate” of 3.8% on line 26 of the return. |
| Distribution deduction | An Iowa income distribution deduction is allowed on line 21 of the IA 1041 for amounts paid, credited or required to be distributed to beneficiaries, and it is limited to Iowa distributable net income. The source says: “is limited to Iowa Distributable Net Income (DNI).” |
| Nonresident trusts | A nonresident individual’s net income allocated to Iowa includes income from property, a trust, an estate or another source within Iowa under Iowa Code 422.8. For a trust whose situs is outside Iowa, Schedule C lists all source income in one column and Iowa source income in another to compute the nonresident credit. In the source’s words, “Iowa source income reportable in Column B of IA 1041 Schedule C” includes income from an Iowa business, farm or other real estate. |
| Return to file | Estates and trusts file Form IA 1041 with a copy of the federal Form 1041, and a trust with nonresident beneficiaries also files an Iowa composite return, IA PTE-C. In the source’s words, “An Iowa fiduciary return (IA 1041) must be filed for” estates, trusts, and other entities taxed as trusts for federal purposes. |
| Personal exemption credit and ESBTs | A $40 exemption credit is allowed on all fiduciary returns, and the tax on the portion of an electing small business trust is computed on Schedule E and reported on line 30. |
A $10,000 example
A trust with $10,000 of taxable income that it keeps, rather than distributes, is taxed at 3.8%, computed as $10,000 x 3.8% = $380, before any deduction or exemption the state allows. 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 Iowa taxes retirement income, whether Iowa taxes pensions, what a living trust costs in Iowa, federal trust tax brackets, and trust income tax by state.
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Answer againSources
- 2025 IA 1041 Iowa Fiduciary Return Instructions (Iowa Department of Revenue): https://revenue.iowa.gov/media/4379/download?inline=
- 2025 IA 1041 Iowa Fiduciary Return (Iowa Department of Revenue): https://revenue.iowa.gov/media/4378/download?inline=
- Iowa Code 2026, Section 422.6, Income from estates or trusts (Iowa Legislature): https://www.legis.iowa.gov/docs/code/422.6.pdf
- Iowa Code 2026, Section 422.5, Tax imposed (Iowa Legislature): https://www.legis.iowa.gov/docs/code/422.5.pdf
- Iowa Code 2026, Section 422.8, Allocation of income earned in Iowa and other states (Iowa Legislature): https://www.legis.iowa.gov/docs/code/422.8.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.