Updated October 5, 2026. Quick answer: Sometimes. New Jersey taxes the income a trust keeps, and treats the trust as a resident trust when it holds property of a person “domiciled in New Jersey at the time such property was transferred” to the trust while irrevocable, or domiciled in New Jersey when a revocable trust later became irrevocable. But a resident trust with no tangible assets in New Jersey, no New Jersey source income and no New Jersey trustees “is not subject to New Jersey tax”, though it still files Form NJ-1041.
How New Jersey treats trust income
| Item | What the documents say |
|---|---|
| Treatment | A resident or nonresident trust that has gross income over $10,000 files a New Jersey Gross Income Tax Fiduciary Return, and income distributed to beneficiaries is deducted from the trust. |
| Who counts as a resident trust | A trust is resident when it holds property transferred by will of a New Jersey decedent, or property of a person domiciled in New Jersey when the property was transferred to an irrevocable trust or when a revocable trust became irrevocable. The source says: “The residence of the fiduciary does not affect” the nonresident classification of an estate or trust. So the trustee’s home state does not decide residency. |
| Exempt resident trusts | The instructions say a resident estate or trust “is not subject to New Jersey tax” if it has no tangible assets in New Jersey, no income from New Jersey sources and no trustees or executors in New Jersey. The fiduciary still files Form NJ-1041, encloses a statement certifying that the trust is not subject to tax, and checks the box on line 27. |
| Rate on trust income | Trusts use the 2025 New Jersey tax rate schedule, which multiplies taxable income by .014 (1.4%) on the first $20,000, rising to .1075 (10.75%) on income over $1,000,000, after a $1,000 exemption. |
| Distribution deduction | The return gives a deduction for income distributed or required to be distributed to beneficiaries, and that income is taxed to the beneficiary instead. The source says: “Deduction for Distributions to Beneficiaries”. |
| Nonresident trusts | A nonresident trust computes tax on income from all sources and then prorates it by the share of income from New Jersey sources. The source says: “calculated on income from all sources and then prorated”. |
| Return to file | Form NJ-1041 is the return for estates and trusts, required when gross income was more than $10,000. |
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, .014 (1.4%), the tax is computed as $10,000 x .014 = $140; taxed wholly at the highest, .1075 (10.75%), it is computed as $10,000 x .1075 = $1,075. 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 Jersey taxes retirement income, whether New Jersey taxes pensions, what a living trust costs in New Jersey, trust income tax by state, and federal trust tax brackets.
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Answer againSources
- 2025 Form NJ-1041 Instructions (New Jersey Division of Taxation): https://www.nj.gov/treasury/taxation/pdf/current/1041i.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.