Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated July 28, 2026. Quick answer: They behave in opposite ways, in the same section. A trust’s threshold is not a fixed dollar amount at all — IRC §1411(a)(2)(B)(ii) ties it to the start of the top trust bracket, which is indexed, so it rises every year. The individual thresholds are fixed statutory amounts with no inflation adjustment anywhere in the statute, and have never moved since enactment.
Schedule 2 (Form 1040) for 2025, read line by line: Schedule 2 line 12.
Price a sale against the 2026 capital gains rates: capital gains tax calculator.
The individual thresholds for 2026: the 2026 net investment income tax and the 2026 Additional Medicare Tax.
Two provisions, opposite behaviour
| Trust or estate | Individual | |
|---|---|---|
| Threshold set by | §1411(a)(2)(B)(ii) — the top bracket start | §1411(b) — a fixed dollar amount |
| Indexed? | Yes, indirectly | No. Never |
| Effect over time | Keeps pace | Catches more people every year by inflation alone |
This is a genuine drafting asymmetry with real consequences in both directions. The individual threshold is a fiscal-drag story — an unindexed figure that reaches further down the income scale every year. The trust threshold does not drift that way, but it starts so low that a trust hits it almost immediately anyway.
The exemption most trustees can actually use
A trust’s NIIT base is limited to undistributed net investment income. §1411(a)(2) applies the tax to the lesser of undistributed net investment income or the excess over the threshold. So a timely distribution of investment income can take it out of the trust’s NIIT base entirely — and the beneficiary may be well below their own unindexed threshold, in which case the 3.8% disappears rather than moving.
That is one more reason the distribution decision matters, alongside the bracket compression. Both point the same way, and both are bounded by what distributable net income allows.
Figures verified against 26 U.S.C. 1411(a) and (b) on September 29, 2026.
No dollar amounts appear on this page. The trust rate brackets are adjusted annually, and the trust threshold for the net investment income tax is not a fixed figure at all — IRC §1411(a)(2)(B)(ii) ties it to the start of the top trust bracket, so it moves every year. Take current figures from the IRS revenue procedure for the year in question.
Sources
IRC §1(e) and §1(j) (as made permanent by P.L. 119-21); §641; §643(a); §644; §651 and §661 (distribution deduction); §663(b) and Treas. Reg. §1.663(b)-2; §671 and §673–677 (grantor trust rules); §675(4)(C) (substitution power); §1411(a)(2) and (b) (net investment income tax); Rev. Rul. 2008-22. North Carolina Dept. of Revenue v. Kaestner Family Trust, 588 U.S. 262 (2019). All read July 2026.
This states what the cited authority says. It is not tax advice. The trust threshold moves each year with the top trust bracket, and the individual thresholds do not move.
Related
How a trust reports the net investment income adjustment to a beneficiary: Box 14 code H.