Updated October 5, 2026. Quick answer: Yes. Michigan taxes trust income. The Treasury instructions say a trust is a resident trust if its “grantor domiciled in Michigan at the time the trust becomes irrevocable”. The 2025 trust return applies a flat 4.25% rate.
How Michigan treats trust income
| Item | What the documents say |
|---|---|
| Treatment | Michigan levies its income tax on every person other than a corporation, and the statute defines that to include an estate or trust. The source says: “An estate or trust as defined in the internal revenue code”. |
| Who counts as a resident trust | The Treasury instructions say a trust is a resident trust if its “grantor domiciled in Michigan at the time the trust becomes irrevocable”. The statute also covers a trust created by the will of a decedent who was domiciled in Michigan at death. The MI-1041 booklet lists one exception: Michigan cannot tax income accumulated by a trust that became irrevocable on the death of a settlor who was a Michigan resident when the trustee is not a Michigan resident, the trust assets are neither held, located nor administered in Michigan, and the beneficiaries are all nonresidents. |
| Rate on trust income | The 2025 MI-1041 computes the tax at one flat rate, with no separate trust bracket schedule. The source says: “Multiply line 12 by 4.25% (0.0425)”. |
| Distribution deduction | For a resident trust that distributes income, Michigan follows federal distributable net income in splitting the income between the trust and its beneficiaries. The source says: “If income is distributed, the net Michigan adjustment for resident” estates or trusts is allocated in proportion to each beneficiary’s share of federal distributable net income. |
| Nonresident trusts | A nonresident trust is taxed on Michigan-source income, and the instructions excuse a filing for one with little Michigan income. The source says: “Nonresident estate or trust with income from Michigan sources” less than the federal exemption deduction does not have to file. |
| Return to file | The fiduciary files Form MI-1041, and a grantor trust is instead reported on the owner’s individual return, Form MI-1040. |
A $10,000 example
A trust with $10,000 of taxable income that it keeps, rather than distributes, is taxed at 4.25%, computed as $10,000 x 4.25% = $425, 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 Michigan taxes retirement income, whether Michigan taxes pensions, what a living trust costs in Michigan, trust income tax by state, and federal trust tax brackets.
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Answer againSources
- 2025 MI-1041 Fiduciary Income Tax Return Instruction Book (Michigan Department of Treasury): https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/Fiduciary/TY2025/MI-1041Book.pdf
- 2025 MI-1041 Michigan Fiduciary Income Tax Return (Michigan Department of Treasury): https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/Fiduciary/TY2025/MI-1041.pdf
- MCL 206.18 Resident and domicile; definitions (Michigan Legislature): https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-206-18
- MCL 206.51 Tax rate on taxable income (Michigan Legislature): https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-206-51
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.