Internal Revenue Code taxes estates and trusts as a person. So every year the government publishes income tax rates for estates or trusts separately. As you know, when an individual dies, his investments in various kinds of properties like stocks, bonds, or rental property, or other assets, that he/she owned at the time of his/her death, goes to his/her estate. So, any income generated out of such assets, now owned by an estate of the deceased person, has to be reported in the name of trust or estate and tax at the prescribed rate for estate or trust has to be paid like anyone else. Read the IRS guide on Filing the Estate Income Tax Return
Estate Tax vs Estate Income Tax
Do not confuse between Estate tax and income tax on Estate.Normally,if a person dies between Jan. 1 and Dec. 31, 2020, his “estate” may be subject to an estate tax on assets value after exempting $11,580,000 .Please read more on estate tax . However, any income is generated out of assests of estate, income of the estate will be subject to an income tax separately.
Estate income tax calculator
2021 & 2020 Tax Rates for Estates and Trusts
The 2020 rates and brackets for the income of an Estate or trust
| If taxable income is: | The tax is: |
| Not over $2,600 | 10 percent of taxable income |
| Over $2,600 but not over $9,450 | $260 plus 24 percent of the excess over $2,600 |
| Over $9,450 but not over $12,950 | $1,904 plus 35 percent of the excess over $9,450 |
| Over $12,950 | $3,129 plus 37 percent of the excess over $12,950 |
Estate & Trust tax rates 2021
| If taxable income is: | The tax is: |
| Not over $2,650 | 10 percent of taxable income |
| Over $2,600 but not over $9,550 | $265 plus 24 percent of the excess over $2,600 |
| Over $9,450 but not over $13,050 | $1,921 plus 35 percent of the excess over $9,300 |
| Over $13,050 | $3,146 plus 37 percent of the excess over $12,750 |
The 2021 rates and brackets were announced by the IRS here
What is the form for filing estate tax return
The federal estate tax return has to be filed in the IRS Form 1041, the U.S. Income Tax Return for Estates and Trusts. Also to note that the Schedule K-1 should be properly filled if the trust has transferred an asset to a beneficiary and claimed a deduction for that. A copy of the Schedule K-1 has to be sent to the recipient as well.
Who must file federal estate income tax return?
The prescribed tax return for estate or trust is IRS Form 1041. But before, you file a return for estate or trust, the executor must apply for employer identification number (EIN) even if no employee is on roll. Application for an EIN can be done by mail, fax, or online. In the following situation, a federal estate tax return in Form 1041 must be filed with IRS:
- Estates with gross income $600 or more for the tax year
- Estates with any beneficiary who is a nonresident alien
In case of trusts, tax return in Form 1041 must be filed if:
- the trusts any taxable income.
- the trusts have a gross income of $600 or more regardless of taxable income
- the trusts have any beneficiary who is a nonresident alien
