Trust and Estate Tax Brackets 2027: 37% Starts at $16,500

Most people learn how steep the trust tax brackets are the hard way, on their first Form 1041, when a modest pile of interest income has already pushed the trust into the top federal rate. A trust or estate reaches the 37 percent bracket at roughly $16,000 of taxable income, while a single individual does not get there until hundreds of thousands of dollars. The short answer: by our projection, the 37 percent bracket for trusts and estates starts at $16,500 for 2027, up from $16,000 in 2026, and that number is the same under both of the methods we ran. The only ordinary-rate figure that changes with the method is where the 24 percent bracket ends, which is $12,100 under one method and $12,050 under the other.

How the trust brackets are built, and why they are so compressed

Trusts and estates that keep their income, rather than passing it out to beneficiaries, are taxed on Form 1041 under a rate schedule with four rates, 10, 24, 35 and 37 percent, squeezed into a very narrow range of income. The statutory table lives in 26 U.S.C. section 1(j)(2)(E), and its base-year 2018 version reads as follows: 10 percent up to $2,550, 24 percent from $2,550 to $9,150, 35 percent from $9,150 to $12,500, and 37 percent above $12,500. Each year since, the IRS has indexed those dollar amounts for inflation and published the result in its annual revenue procedure.

The official 2025 figures, from Rev. Proc. 2024-40, were 10 percent up to $3,150, 24 percent up to $11,450, 35 percent up to $15,650 and 37 percent above $15,650. For 2026, Rev. Proc. 2025-32 moved them to $3,300, $11,700 and $16,000. The practical consequence of those numbers is that a trust holding a large investment account and keeping the income inside pays the top federal rate on nearly everything it earns. That is the main reason trustees and their advisors care so much about distribution decisions, a point we return to below.

The method, and the October 2025 problem

The adjustment is mechanical. Section 1(f)(3) tells the IRS to index using the chained consumer price index for all urban consumers, known as the C-CPI-U, and the comparison is between the average of the 12 months ending August 31 of the year before the tax year and the same average for the base year; for 2027 that means September 2025 through August 2026. The August 2026 figure was published on September 11, 2026, so the data window is closed. Section 1(f)(7)(A) then says the increases in the bracket dollar amounts are rounded down to the next lower multiple of $50, which is why the brackets move in $50 steps.

There is one wrinkle this year. October 2025 does not exist in the Bureau of Labor Statistics series, because the data were not collected during the federal government shutdown. That leaves two reasonable ways to compute the 12-month average. The first, which we call the eleven-month average, simply averages the 11 months that do exist. The second, which we call October imputed, fills in a value for October 2025 and averages all 12. We ran both. Before trusting either, we checked that the method reproduces the 2026 trust figures that the IRS has already published. It does: all 7 control figures match, namely the three ordinary brackets, the two capital gains breakpoints, the AMT exemption and the AMT phase-out start.

The 2027 projection side by side with 2026

Here is the full comparison for the figures that matter on a Form 1041. The 2026 column is official; the two 2027 columns are projections.

Two of these rows deserve a closer look because the methods diverge for reasons that are almost accidental. The unrounded eleven-month value for the end of the 24 percent bracket is $12,103.41, which clears the $12,100 step by just $3.41. The October imputed value is $12,088.38, which falls short of it and rounds down to $12,050. The AMT exemption is similar: the eleven-month value of $32,459.19 is $9.19 above the $32,450 midpoint, so it rounds to $32,500 under the nearest-$100 rule of section 55(d)(3), while the October imputed value of $32,418.87 rounds to $32,400.

For transparency, here are the unrounded values behind every projected figure, listed as eleven-month average first and October imputed second.

The finding behind the lopsided growth: two base years in one table

The most useful thing we found while checking the 2026 control figures is an oddity in how the 10 percent bracket moved. From 2025 to 2026, the end of the 10 percent bracket rose from $3,150 to $3,300, an increase of 4.8 percent. In the same year, the start of the 37 percent bracket rose from $15,650 to $16,000, an increase of just 2.2 percent. Both numbers are in the same table and both are indexed to the same inflation series, so why the gap?

The answer is in the wording that Public Law 119-21, the One Big Beautiful Bill Act, gave section 1(j)(3)(B)(i). That clause says that “solely for purposes of determining the dollar amounts at which any rate bracket higher than 12 percent ends and at which any rate bracket higher than 22 percent begins,” the base year is 2017. Every other limit in the schedule, including the one that closes the lowest brackets, uses 2016 as the base. Before the amendment the whole trust table ran on 2017, which is how the 2025 figure of $3,150 was built. A 2016 base means one additional year of accumulated inflation compared with a 2017 base, so any figure indexed from 2016 grows faster.

The trust table makes this visible because it has an unusual feature: the point where the 10 percent bracket ends is also the point where the 24 percent bracket begins, and a 24 percent bracket is “higher than 22 percent,” which could suggest the 2017 base applies to it. The IRS evidently read it the other way and treated that shared breakpoint with the 2016 base. We can test that reading against the published number. Under a 2017 base, the 2026 figure would have been $3,250. The official figure is $3,300, which matches the 2016 base. That is the reason the 10 percent bracket for trusts jumped 4.8 percent while the 37 percent threshold, which is governed by the 2017-base clause, rose only 2.2 percent.

What a trust actually pays: a $50,000 example

Abstract brackets are easier to judge with a concrete case. Take a complex trust that earns $50,000 of interest and does not distribute any of it, with no other deductions. A trust that is not required to distribute all of its income is entitled to a $100 exemption under section 642(b), so its taxable income is $49,900. (The exemption is $600 for an estate and $300 for a simple trust that must distribute all of its income each year.)

Under the 2026 brackets, the regular tax on $49,900 is $16,394.00. The net investment income tax then applies to the lesser of the $50,000 of undistributed net investment income or the amount by which adjusted gross income exceeds the $16,000 threshold. Using the figures in this example, the NIIT base is $33,900, and 3.8 percent of it is $1,288.20. The total federal bill for 2026 is therefore $17,682.20.

Under the 2027 projection, the eleven-month brackets give regular tax of $16,326.00. The NIIT threshold is $16,500, so the base is $33,400 and the tax is $1,269.20, for a total of $17,595.20. Under the October imputed brackets, the regular tax is $16,331.50, the NIIT is the same $1,269.20, and the total is $17,600.70.

The total is slightly lower in 2027 because wider brackets leave less income taxed at the top rate, and the larger NIIT threshold leaves less exposed to the surtax. The gap is modest, which is the usual story with inflation indexing: it softens the edges but does not change the shape of the schedule.

The accumulated tax by the time a trust reaches the start of the 37 percent bracket is $3,851.00 in 2026, and $3,968.00 under the eleven-month projection or $3,973.50 under October imputed for 2027. Everything beyond that point is taxed at 37 percent, plus the 3.8 percent NIIT where it applies.

Distribution is the lever, and the 65-day election is the clock

The compression of these brackets is the reason the distribution question dominates trust tax planning. When a trust distributes income to a beneficiary, the income is generally taxed on the beneficiary’s own return at the beneficiary’s own rates instead of at the trust’s. For a single individual those individual rates do not reach 37 percent until income is in the hundreds of thousands of dollars, which is a very different place from $16,500. Our guide to the 2027 individual tax brackets and standard deduction projection lays out where that line falls for a person filing alone.

Timing matters as well. Under section 663(b), a trustee can elect to treat distributions made within the first 65 days of the following year as if they had been made in the year that just ended. That gives a trustee a few weeks after year-end, when the trust’s actual income is known, to decide how much to push out and how much to keep. Whether distributing is the right move depends on the trust document, the trustee’s fiduciary duties and each beneficiary’s circumstances, and a trust is not obligated to chase the lowest tax bill at the expense of its purpose. But the arithmetic above is why the question comes up every year.

Capital gains, NIIT and AMT inside the trust

Long-term capital gains and qualified dividends have their own breakpoints in a trust. For 2026 the 0 percent rate applies up to $3,300 and the 15 percent rate up to $16,250, with 20 percent above that. Our 2027 projection moves those to $3,400 and $16,750 under both methods. The practical effect is that a trust that keeps its gains reaches the 20 percent rate at a very low level of income. For the individual version of the same breakpoints, see our 2027 capital gains bracket projection.

The net investment income tax follows the top ordinary bracket by design. Section 1411(a)(2) taxes the lesser of the trust’s undistributed net investment income or the adjusted gross income above the dollar amount at which the highest bracket begins, so the threshold for 2027 is projected at $16,500, against $16,000 in 2026. The mechanics of the form itself are in our Form 8960 line-by-line guide.

The alternative minimum tax has its own, much higher, trust figures. The exemption is $31,400 for 2026 and is projected at $32,500 or $32,400 for 2027, and the exemption begins to phase out at $104,800 in 2026 and a projected $108,200 or $108,100 in 2027. Those amounts are indexed under section 55(d)(3) from a 2011 base and rounded to the nearest $100, not down to a multiple of $50, which is why this is the one row where the two methods can differ by a full $100 on what looks like a trivial difference in the unrounded numbers. For the individual version, including the 2026 draft, see our Form 6251 draft guide.

What could still change

The projection is only as good as the one assumption we could not verify, which is how the IRS will handle the missing October 2025 observation. If it averages the 11 months that exist, the 24 percent bracket should end at $12,100 and the AMT exemption should be $32,500. If it imputes a value for October, those two figures drop to $12,050 and $32,400. Every other figure in the table is the same under both methods, so a trustee planning around the 37 percent threshold, the NIIT threshold or the capital gains breakpoints can plan around $16,500 for both of the first two and $3,400 and $16,750 for the capital gains breakpoints with some confidence.

The official numbers will arrive in the IRS revenue procedure with the 2027 inflation adjustments, which normally comes out in late October or in November. When it does, we will replace the projection with the official figures. In the meantime, our 2027 IRS inflation adjustments tracker lists every projected figure in one place, and our 2027 estate and gift tax exemption projection covers the separate transfer-tax side of estates. Neither is a substitute for advice from a qualified tax professional who has read the trust document.

Sources

• IRS, Rev. Proc. 2025-32 (2026 inflation adjustments, Table 5 and section 4.03)
• 26 U.S.C. § 1 — law.cornell.edu/uscode/text/26/1
• 26 U.S.C. § 1411 — law.cornell.edu/uscode/text/26/1411
• 26 U.S.C. § 55 — law.cornell.edu/uscode/text/26/55
• 26 U.S.C. § 642 — law.cornell.edu/uscode/text/26/642
• 26 U.S.C. § 663 — law.cornell.edu/uscode/text/26/663
• Bureau of Labor Statistics, C-CPI-U series (SUUR0000SA0)
• Public Law 119-21, section 70101 (base-year amendment to section 1(j)(3)(B)(i))