2022 Estate and Trust Tax Rates and Reporting Rules

Trusts and estates are taxed on income they earn at their own rates

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Estates and trusts are taxed on the income they earn, just like everyone else. A deceased individual might have owned stocks, bonds, rental property, or other interest- and dividend-producing assets at the time of their death. These assets become "owned" by their estate when the individual dies. Any income generated by the assets after the death must be reported by the trust or estate.

Key Takeaways

  • Estates and trusts are taxed on the income they earn and are required to file IRS Form 1041, the U.S. Income Tax Return for Estates and Trusts.
  • Estates and trusts follow their own tax rates and income brackets, which are indexed for inflation each tax year.
  • The tax rates and brackets are not the same as estate tax thresholds and exemptions. The tax rates and brackets only apply to income earned by trusts or estates before assets are transferred to beneficiaries.

The Income Tax Return for Estates and Trusts

Estates and trusts that generate income during the year are subject to tax rates set by the federal government. They're required to file IRS Form 1041, the U.S. Income Tax Return for Estates and Trusts. The tax brackets are adjusted each year for inflation, just as personal income tax brackets are.

Form 1041 isn't required if all income-producing assets pass directly to a beneficiary after death. This might be the case with real estate owned jointly with the right of survivorship or an individual retirement account (IRA) that passes directly to a spouse.

Note

Trusts and estates can take certain deductions on their returns, just as other taxpayers can. They can claim a deduction for any asset that's transferred to a beneficiary.

Income distributions are reported on Schedule K-1, which is sent to the recipient. The IRS receives a copy as well. The asset is then reportable by the beneficiary as income after distribution.

Which Estates and Trusts Must File Form 1041?

Estates with a gross income of $600 or more for the tax year and those with any beneficiary who's a nonresident alien are required to file IRS Form 1041.

Trusts that have any taxable income at all, that have a gross income of $600 or more regardless of taxable income, or with any beneficiary who is a nonresident alien are required to file Form 1041 as well.

Note

An estate must request a tax ID number in order to file these documents and to transact other business. The ID number is the employer identification number (EIN) regardless of whether the estate actually employs anyone. Estate executors can apply to the IRS for an EIN by mail, fax, or online.

Estate and Trust Income Tax Brackets

Below are the tax rates and income brackets that would apply to estates and trusts that were opened for deaths that occurred in 2022. They would apply to the tax return filed in 2023.

Income Bracket  Tax Rate 
$0 to $2,750  10% of income over $0
$2,750 to $9,850  $275 + 24% of income over $2,750 
$9,850 to $13,450  $1,979 + 35% of income over $9,850 
$13,450 or more  $3,239 + 37% of income over $13,450 

Income Taxes Aren't the Same as Estate Taxes

These tax rates and brackets shouldn't be confused with estate tax thresholds and exemptions. They apply only to income earned by trusts or estates before assets are transferred to beneficiaries. The estate tax applies to the estate's overall value and requires filing IRS Form 706, the U.S. Estate (and Generation-Skipping Transfer) Tax Return.

Only estates valued at more than $12.06 million were subject to the estate tax in 2022. This threshold is also indexed for inflation. It increases to $12.9 million for deaths that occur in 2023.

Frequently Asked Questions (FAQs)

What is the difference between a trust and an estate?

A trust is a type of relationship or arrangement where a third party holds title to property or assets on behalf of a beneficiary. A trust can be formed under state law. It usually avoids probate. An estate is the term used for a person's property after they die. An estate may include a person's house, assets, personal items, and more.

What is the highest trust and estate tax rate?

The highest trust and estate tax rate is 37%. It applies to income of $13,450 or more for deaths that occur in 2022. The tax rate works out to be $3,146 plus 37% of income over $13,450. IRS Form 1041 gives instructions on how to file.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Deceased Taxpayers: Filing the Estate Income Tax Return, Form 1041."

  2. IRS. "Instructions for Form 1041 and Schedules A, B, G. J and K-1."

  3. IRS. "2022 Form 1041-ES," Page 5.

  4. IRS. “IRS Provides Tax Inflation Adjustments for Tax Year 2022.”

  5. IRS. “IRS Provides Tax Inflation Adjustments for Tax Year 2023.”

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