Distribute or Retain? Trust Income Calculator
2026 tables · reviewed September 4, 2026
Compares the tax if a trust keeps this year's income with the tax if it pays the income out to the beneficiary. AboutLess
In plain words. A trust that keeps its income pays tax at rates that reach the top bracket at about sixteen thousand dollars. If it pays the income out instead, the trust deducts it and the beneficiary pays tax on it at their own rates, on top of their own income. This tool computes both, including the 3.8 percent surtax on investment income each way, and shows the difference.
Why it matters. The trustee makes this choice every year, and the tax difference is often thousands of dollars. This gives the tax half of the decision; whether the beneficiary should have the money is the other half.
An example. A trust with $50,000 of dividends: keeping it costs about $17,700 in tax and surtax. Paying it to a single beneficiary who has $60,000 of other income costs about $11,100. Distributing saves about $6,600.
Where it stops. It assumes the whole amount can be paid out and taxes it at ordinary rates in both hands; dividends and long-term gains have their own lower rates, and capital gains usually stay in the trust. The trust's fees, state tax, and the reason the trust exists are not in the number. Everything it leaves out.
The trust's taxable income before it deducts anything it pays out. Count interest, dividends, rents, and any gains the trust document treats as income available to pay out.
Their taxable income before anything from the trust. Income paid out to them is taxed on top of it.
Interest, dividends, rents, and gains. This is the part the 3.8% net investment income surtax can reach.
- Income where the trust hits the 37% top rate
- $16,000
- The 3.8% surtax starts at the same figure
- Income where the beneficiary hits the 37% top rate
- $640,600
- Their surtax starts at $200,000 of modified adjusted gross income
- The 3.8% surtax, kept or paid out
- $1,292 vs $0
- Kept in the trust, then paid out
A trust's tax brackets are squeezed into a very small range. Its top rate and the surtax both begin at $16,000. The beneficiary does not reach the top rate until $640,600. When the trust pays income out, the beneficiary is taxed on it at their own rates instead, and the trust deducts what it paid. The tax answer is only half the question. Money paid out also leaves the trust's protection, which is what the trust was for.
This uses the 2026 tax tables for trusts and individuals from Rev. Proc. 2025-32, the surtax thresholds, and the rules that let a trust deduct what it pays out and tax the beneficiary on it instead. It assumes a trust that pays its own tax (a non-grantor trust), a payout fully within the income the trust can pass through, and ordinary rates on everything, though qualified dividends and long-term gains would get their own lower rates in either hand. It leaves out state tax, trustee fees, the 65-day election, and the throwback rules. Educational, not advice.
This is a simplified model, not your actual tax return or plan. It only knows what you type in, leaves out rules that may apply to you, and cannot weigh the other facts and trade-offs a real decision depends on. Before you act, talk with a professional who knows your whole situation.
Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.