Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
Updated October 2, 2026. Quick answer: A non-grantor trust reaches the top federal rate at a fraction of the income an individual needs — the thresholds differ by more than an order of magnitude. For 2026 the 37% rate applies to trust taxable income over $16,000; an unmarried individual reaches it over $640,600. That compression, set by IRC §1(e) and the trust table in §1(j)(2)(E), is the single fact that drives almost every decision about whether a trust should distribute its income or accumulate it.
Form 1041 (estate and trust income tax return), read line by line: Form 1041 Schedule A, Form 1041 Schedule B lines 1 to 8, Form 1041 Schedule B lines 9 to 15 and Form 1041 Schedule G Part I lines 1 to 3.
More IRS forms and schedules, read line by line: Form 8855 instructions.
Whether your state taxes a trust’s income is answered state by state: state taxation of trust income, by state.
2026 trust and estate tax brackets
For taxable years beginning in 2026, the IRS table for estates and trusts is:
| If taxable income is | The tax is |
|---|---|
| Not over $3,300 | 10% of the taxable income |
| Over $3,300 but not over $11,700 | $330 plus 24% of the excess over $3,300 |
| Over $11,700 but not over $16,000 | $2,346 plus 35% of the excess over $11,700 |
| Over $16,000 | $3,851 plus 37% of the excess over $16,000 |
An unmarried individual reaches the 37% rate above $640,600 of taxable income and a married couple filing jointly above $768,700. A trust reaches it above $16,000.
For comparison, computed here from the 2026 tables, not printed by the IRS: $50,000 of taxable income kept in a trust is taxed $3,851 plus 37% of the $34,000 above $16,000, which is $16,431, while the same $50,000 taxed to an unmarried individual is $1,240 plus 12% of the $37,600 above $12,400, which is $5,752. Taxable income only; deductions and other income are not modeled.
Source: Rev. Proc. 2025-32, section 4.01, Tables 1, 3 and 5 (irs.gov).
Why the compression exists and what it costs
The trust rate schedule uses four of the seven individual rates (10%, 24%, 35% and 37%) and fits them into a very small band of income. Income an individual would have taxed in a low bracket is taxed at the top rate inside a trust.
The consequence: for most trusts, income taxed inside the trust is taxed at the highest possible rate, while the same income taxed to a beneficiary is usually taxed at a much lower one. That is what the distribution deduction exists to exploit, and it is why trustees think about distributions as a tax decision rather than only a beneficiary-support decision.
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A change most planning content has not absorbed
The §1(j) rate structure was scheduled to expire after 2025. It was made permanent by P.L. 119-21. A great deal of trust planning material still assumes a sunset and a reversion to the prior schedule. That assumption is now wrong, and it affects any plan built around waiting for rates to change on their own.
What does not follow from this
That every trust should distribute everything. A trust exists for reasons that are usually not tax reasons — protecting a beneficiary, controlling timing, keeping assets out of reach. Distribution solves the tax problem by handing the money over, which is sometimes exactly what the trust was created to avoid. The compression is a cost to weigh, not an instruction.
These are the 2026 figures from Rev. Proc. 2025-32, and they are adjusted every year. The trust threshold for the net investment income tax is not a separate number: section 1411(a)(2)(B)(ii) sets it at the dollar amount where the top trust bracket begins, which is $16,000 for 2026.
Sources
Rev. Proc. 2025-32, section 4.01, Tables 1, 3 and 5; 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, except Rev. Proc. 2025-32, read October 2, 2026.
This states what the cited authority says. It is not tax advice, and how a trust should be taxed turns on facts about the trust and its beneficiaries that no page can see. Every dollar figure on this page is indexed and changes annually.
Figures verified against 26 U.S.C. 1(e), 1(j) and 1411, P.L. 119-21 section 70101 and IRS Rev. Proc. 2025-32 on September 29, 2026.
Related
More Estate, Probate & Inheritance guides: see the full 780-page index.
Income a trust passes to a beneficiary shows on Schedule K-1: the Schedule K-1 (Form 1041) boxes table, Boxes 1 to 5.