1041 Allocation Of Estimated Payments & Withholding

Posted by Lee Reams Sr. on

This issue comes up on the ClientWhys tax forum multiple times every year.

In the final year of a 1041 the income is passed through to the beneficiaries and there is no tax assessed on the 1041. So when this occurs how are tax pre-payments dealt with?

Estimated Tax Payments – The estimated tax payments can be refunded to the estate on the 1041 or trustee/executor can elect to have the payments distributed to the beneficiaries. This election is made on Form 1041-T and reporting the beneficiary’s share on the 1041 K-1, box 13, code A. Form 1041-T must be filed by the 65th day after the close of the trust’s tax year.

Withholding – Withholding cannot be distributed to the beneficiaries. It must be refunded to the trust or estate.

Backup Withholding – Unlike, regular withholding, backup withholding can be allocated to the beneficiaries and the beneficiary’s share is reported on the 1041 K-1, box 13, code B.

See the 1041 instructions, page 27 for additional details.