2019 Income Tax Brackets for Estates and Trusts
Trusts and estates are taxed on income they earn at their own rates
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.
The Income Tax Return for Estates and Trusts
Estates and trusts that generate income during the year are subject to IRS-set tax rates. They're required to file IRS Form 1041, the U.S. Income Tax Return for Estates and Trusts. Their tax brackets are adjusted each year for inflation, just like personal income tax brackets.
Trusts and estates can also take certain deductions on their returns, just as other taxpayers can. They could claim a deduction for any asset that's transferred to a beneficiary. These income distributions are reported on Schedule K-1, which is sent to the recipient and the IRS. After distribution, the asset is then reportable by the beneficiary as income.
Which Estates and Trusts Must File Form 1041?
The following estates are required to file IRS Form 1041 in 2019:
- Estates with gross income $600 or more for the tax year
- Estates with any beneficiary who is a nonresident alien
The following trusts are required to file IRS Form 1041 in 2019:
- Trusts that have any taxable income at all
- Trusts that have a gross income of $600 or more regardless of taxable income
- Trusts with any beneficiary who is a nonresident alien
An estate must request a tax ID number to file these documents and transact other business. It's called an 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.
2019 Estate and Trust Income Tax Brackets
The Tax Cuts and Jobs Act (TCJA) changed income tax brackets across the board when it went into effect in January 2018, including those assigned to estate and trust income. The 2019 rates and brackets were announced by the IRS in Rev. Proc. 2018-57 on Nov. 15, 2018.
- $0 to $2,600 in income: 10% of taxable income
- $2,601 to $9,300 in income: $260 plus 24% of the amount over $2,600
- $9,301 to $12,750 in income: $1,868 plus 35% of the amount over $9,300
- Over $12,750 in income: $3,075.50 plus 37% of the amount over $12,750
The TCJA also altered the inflation index that annually increases all tax bracket figures. The Internal Revenue Code previously adjusted bracket thresholds according to the Consumer Price Index (CPI). It now uses the chained CPI, which is a bit more complicated, and it generally results in a lesser inflation adjustment.
These income ranges are nonetheless expected to increase at least somewhat in 2020.
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.
As of 2019, only estates valued at more than $11.4 million are subject to this tax, up from $11.18 million in 2018, and $5.49 million in 2017. The TCJA more or less doubled the estate tax exemption in 2018.
Tax brackets and rates are current as of the 2019 tax year. Please consult with an accountant or an attorney for information regarding prior years. The information contained in this article is not intended as tax advice, and it is not a substitute for tax advice.
IRS. "Deceased Taxpayers – Filing the Estate Income Tax Return, Form 1041," Accessed Dec. 9, 2019.
IRS. "2019 Instructions for Form 1041 and Schedules A, B, G, J, and K-1," Page 6. Accessed Dec. 9, 2019.
Congress. "Tax Cuts and Jobs Act," Accessed Dec. 9, 2019.
IRS. "Rev. Proc. 2018-57 Tax Forms and Instructions," Accessed Dec. 9, 2019.
IRS. "2019 Form 1041-ES," Accessed Dec. 9, 2019.
Tax Policy Center. "How Did the Tax Cuts and Jobs Act Change Personal Taxes?" Accessed Dec. 9, 2019.
Congressional Budget Office. "Use an Alternative Measure of Inflation to Index Some Parameters of the Tax Code," Accessed Dec. 9, 2019.
IRS. "What's New - Estate and Gift Tax," Accessed Dec. 9, 2019.