Trust Tax Rates 2026: Federal and California

The trust tax rate is the number that surprises trustees most. A single person doesn’t reach the 37% bracket until $640,600 of taxable income in 2026. A trust reaches it at $16,000. Below is the full federal table, California’s rates, and a $100,000 example that shows what the choice between keeping income and paying it out costs.

What are the federal trust tax rates for 2026?

For tax year 2026, an estate or non-grantor trust pays 10% on the first $3,300 of taxable income, 24% up to $11,700, 35% up to $16,000, and 37% on everything over that. The IRS set these amounts in Rev. Proc. 2025-32, released October 9, 2025.

2026 taxable income of the trust	Federal tax
Not over $3,300	10% of taxable income
Over $3,300 to $11,700	$330 plus 24% of the excess over $3,300
Over $11,700 to $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

The One Big Beautiful Bill Act made the current rate structure permanent for individuals and kept the same four rates for estates and trusts, so 2026 isn’t a cliff year. Only the dollar thresholds move with inflation.

What are the capital gains rates for a trust?

Long-term capital gains and qualified dividends inside a trust are taxed at 0% up to $3,300, 15% up to $16,250, and 20% above that in 2026. A trust that sells a rental house or a block of stock and keeps the gain reaches the 20% rate almost immediately. Some articles show $15,650 as the 20% threshold. The 2026 revenue procedure says $16,250.

How does the 3.8% net investment income tax apply to trusts?

A trust owes an extra 3.8% on the smaller of its undistributed net investment income or its adjusted gross income above the dollar amount where the top bracket starts. For 2026 that amount is $16,000. Interest, dividends, rents, royalties, and capital gains count as net investment income.

The rule is in 26 U.S.C. § 1411(a)(2). Individuals don’t pay it until $200,000 (single) or $250,000 (joint). A trust pays it at $16,000. Stack it on the top bracket and retained investment income can face a 40.8% federal rate on ordinary income and 23.8% on long-term gains.

Only undistributed income is exposed. Income that goes out to a beneficiary drops out of the trust’s calculation, and the beneficiary’s own threshold applies instead.

Does California tax trusts, and at what rates?

Yes. California taxes the income of a trust at the trust level, using the same rate schedule as individuals, and requires the fiduciary to file Form 541. The tax applies to the entire taxable income of a trust if the fiduciary or a noncontingent beneficiary is a California resident, wherever the person who created the trust lives (Rev. & Tax. Code § 17742).

That residence test surprises out-of-state families. A trust created by a Nevada resident, with a Nevada trustee, still owes California tax if a noncontingent beneficiary lives in California, on all of its income if that beneficiary is the only one. A noncontingent beneficiary is one whose interest isn’t dependent on a future uncertain event. Where a trust has two or more beneficiaries and residence drives the result, the income is apportioned by the number and interest of the resident beneficiaries under § 17744.

The latest California schedule I could confirm on ftb.ca.gov is the 2025 one, printed in the 2025 Form 541 booklet:

2025 California taxable income	California tax
$0 to $11,079	1.00%
$11,079 to $26,264	$110.79 plus 2.00% over $11,079
$26,264 to $41,452	$414.49 plus 4.00% over $26,264
$41,452 to $57,542	$1,022.01 plus 6.00% over $41,452
$57,542 to $72,724	$1,987.41 plus 8.00% over $57,542
$72,724 to $371,479	$3,201.97 plus 9.30% over $72,724
$371,479 to $445,771	$30,986.19 plus 10.30% over $371,479
$445,771 to $742,953	$38,638.27 plus 11.30% over $445,771
Over $742,953	$72,219.84 plus 12.30% over $742,953

California has no separate trust schedule. Form 541 taxes the trust’s taxable income on the schedule above, so a trust with $100,000 of taxable income is taxed at a 9.3% marginal California rate.

Does my trust have to file a California return?

The fiduciary must file Form 541 for a trust with gross income over $10,000, net income over $100, or any alternative minimum tax liability, per the Form 541 instructions. The return is due the 15th day of the 4th month after year end. For a calendar-year trust, that’s April 15. The FTB allows an automatic six-month extension to file, but the tax itself is still due by that April date.

The $100 net income trigger is low. A trust that earned $150 of bank interest can owe a return. The same instructions say not to file Form 541 if the trust has no California fiduciaries, no California noncontingent beneficiaries, and no California-source income.

Which trusts pay this tax, and which don’t?

Only a non-grantor trust, meaning one the person who created it doesn’t control for tax purposes, pays tax at the trust rates. A revocable living trust that you control during your life is a grantor trust. Under 26 U.S.C. § 671, its income is taxed to you, on your own return, at your own rates. The trust has no separate bill. I cover that in whether a living trust files a tax return.

Three situations move a trust into the high-rate category:

• The person who created it dies. A revocable trust becomes irrevocable and stops being a grantor trust. The trustee gets a new tax ID and starts filing Form 1041 and Form 541. The year-of-death return has its own rules.
• An irrevocable trust holds the assets from the start. Unless it’s drafted as a grantor trust, it pays its own tax.
• A trust created at death splits into a bypass or family trust that keeps the income inside it for a surviving spouse or children.

How does distributing income to beneficiaries change the tax?

When a trust pays income out to a beneficiary, the trust gets a deduction and the beneficiary reports the income instead. The deduction is capped at the trust’s distributable net income, or DNI. DNI is the trust’s taxable income with the distribution deduction added back and capital gains allocated to principal left out (26 U.S.C. § 643(a)).

The deduction comes from § 661(a), which allows a deduction for income required to be distributed currently and for other amounts properly paid or credited, never more than DNI. Section 661(b) says the amounts distributed keep the character of the trust’s income, so interest stays interest and dividends stay dividends when they reach the beneficiary.

The trustee reports each beneficiary’s share on Schedule K-1 (federal Form 1041, and Schedule K-1 (541) for California). The beneficiary uses that K-1 to report the income. Distributions of principal, such as the assets the parent originally put in, generally aren’t taxed. They carry out no DNI. I walk through the beneficiary’s side in do beneficiaries pay taxes on trust distributions.

Can a trustee count a distribution in the next year as paid this year?

Yes, if the trustee elects it. Under § 663(b), an amount properly paid or credited within the first 65 days of a taxable year can be treated as paid on the last day of the prior year. For a calendar-year trust, that means distributions through about March 6 can still be applied to the year that ended. It lets the trustee see the year’s income first, then decide how much to push out to lower-bracket beneficiaries.

What does $100,000 of trust income cost if it’s kept versus distributed?

Kept in the trust, $100,000 of ordinary income produces roughly $43,900 of combined federal and California tax. Distributed to one adult beneficiary in a moderate bracket, the federal tax on the same income drops from about $38,100 to about $23,100. The difference is the bracket compression and the 3.8% tax.

Assume a non-grantor trust in California earns $100,000 of interest and non-qualified dividends in 2026, all of it net investment income. To keep the math clear, I’ve ignored the trust’s small exemption and any trustee or accounting fees, which would trim the numbers slightly. California uses the 2025 schedule above.

Item	Trust keeps all $100,000	Trust distributes all $100,000
Trust taxable income	$100,000	$0
Federal income tax: $3,851 + 37% of $84,000	$34,931	$0
3.8% NIIT on the lesser of $100,000 or $84,000	$3,192	$0
California tax: $3,201.97 + 9.3% of $27,276	$5,739	$0
Tax paid by the trust	about $43,862	$0
Beneficiary’s added federal tax (single, $60,000 other taxable income, 24% bracket)	$0	$23,086

The $23,086 comes from the 2026 single-filer table in the same revenue procedure: tax on $160,000 of taxable income is $30,998, and tax on $60,000 is $7,912. It assumes the beneficiary’s modified adjusted gross income stays under $200,000, so the beneficiary owes no 3.8% tax. The beneficiary also owes California tax on the K-1 income at their own California rate, and that number depends on their bracket.

The federal bill drops by about $15,000 in this example, and the California bill lands on the beneficiary’s return instead of the trust’s. That’s the reason most trustees of a trust that’s still holding income try to distribute it. It isn’t always the right answer. Some trusts are built to hold assets for a beneficiary with a disability or creditor problems, and distributing income to save tax would defeat the purpose. Whether a trustee can distribute depends on the trust’s terms, not the tax table.

Is the trustee taxed at the trust rate?

No. The trustee isn’t personally taxed on the trust’s income. The trust, or the beneficiaries who receive distributions, owe the tax. The trustee’s own compensation is different: a fee a trustee earns for the work is income to the trustee, reported on the trustee’s personal return. See executor and trustee fees in California for how fees are set.

A trustee is responsible for filing the trust’s returns and paying its tax on time. A trustee who distributes everything can find the trust owes tax with no cash left to pay it. I cover the reserve in how much to hold back for taxes before distributing.

Common mistakes with trust taxes

• Leaving income in the trust by default. Without a decision, a trust reaches 37% at $16,000.
• Skipping Form 541 because “the trust is small.” The California test is $100 of net income.
• Filing in the parent’s Social Security number after death. Once the trust turns irrevocable, it needs its own tax ID.
• Forgetting the residence test. A California beneficiary can make an out-of-state trust taxable here.
• Treating principal and income the same. Only income (DNI) carries out tax, and principal doesn’t.

Frequently asked questions

What is the tax rate on a trust in 2026?

The federal rates on a non-grantor trust are 10%, 24%, 35%, and 37%. The 37% rate starts at $16,000 of taxable income. Add the 3.8% net investment income tax on undistributed investment income above $16,000, plus California’s tax at up to 12.3% on the 2025 schedule.

Do revocable living trusts pay their own taxes?

No. While the person who created it is alive and in control, the trust is a grantor trust and its income goes on that person’s Form 1040. California follows the same approach. The FTB says it accepts the optional reporting methods in federal Treasury Regulation section 1.671-4(b)(2) for certain grantor trusts. After death, the trust needs its own tax ID and return.

Do trusts pay capital gains tax?

Yes, when the trust keeps the gain. In 2026 a trust pays 0% on long-term gains up to $3,300, 15% up to $16,250, and 20% above that, plus the 3.8% net investment income tax. Gains allocated to principal and left in the trust stay in the trust’s income. Gains that are distributed can carry out to the beneficiary.

How can a trust reduce its tax bill?

The main lever is distributing income to beneficiaries who are in lower brackets, including through the 65-day election. Deductible trust expenses and charitable deductions also reduce taxable income. Whether the trust allows distributions is a legal question about its terms. A trustee should read the document before making tax-driven decisions.

Does California tax a trust if the trustee lives in another state?

It can. California taxes all of a trust’s income if a fiduciary or a noncontingent beneficiary is a California resident, and the residence of the person who created the trust doesn’t matter. A trust with a Texas trustee and a California-resident beneficiary is an example. When the beneficiaries are mixed, the income is apportioned under the FTB’s rules.

Do I have to file a tax return for a trust with little income?

Possibly. On California’s side, a trust must file Form 541 if its net income is more than $100 or its gross income is more than $10,000. The federal rules are separate, so a trustee should check both. If you’re a trustee on your first year and unsure, talk to Eric, or read the guides on our trust administration page.

This page explains how the tax rules work and isn’t tax advice for your trust. The numbers depend on the trust’s terms, its assets, and where the trustee and beneficiaries live, and a CPA who prepares fiduciary returns should sign off on the returns themselves.