Personal Exemption Update for Qualified Disability Trusts Subject to Phaseout for 2013 Form 1041-ES, Estimated Income Tax for Estates and Trusts -- 13-JAN-2014
For 2013, all qualified disability trusts with modified AGI in excess of $250,000 are subject to a phaseout of the personal exemption deduction. Information about this phaseout was not included on the 2013 Form 1041-ES previously released. If you are filing the 2013 1041-ES on behalf of a qualified disability trust, please read the following before filing the fourth quarter estimated tax payment for the trust on or before January 15, 2014.
On page 1, under the instructions for "Line 4. Exemption," in the paragraph titled "Qualified disability trusts," the instructions did not include language regarding the calculation of the phaseout for the personal exemption deduction for qualified disability trusts. The corrected first paragraph that is inserted after "Trusts required to distribute all income currently" and before "Qualified funeral trusts" states:
"Qualified disability trusts. A qualified disability trust is allowed a $3,900 exemption if the trust’s modified AGI is less than or equal to $250,000. If its modified AGI (as defined in the Instructions for Form 1041) exceeds $250,000, complete the Exemption Worksheet for Qualified Disability Trusts Only to figure the amount of the trust’s exemption."
The remaining second paragraph in that section starting with "A qualified disability trust is any trust..." remains the same.
Additionally, at the bottom of page 4 of the 2013 Form 1041-ES, under the "2013 Tax Computation Worksheet Using Maximum 2013 Capital Gains Rates" there should be an additional worksheet entitled, "Exemption Worksheet for Qualified Disability Trusts Only." This is the worksheet used to determine the phaseout of the personal exemption.
If you are filing the 2013 Form 1041-ES on behalf of a qualified disability trust, you may need to recalculate the final estimated tax payment to account for the phaseout of the personal exemption amount allowed to the qualified disability trust.
If you incur a penalty for the 2013 Form 1041-ES payments, you may request a waiver of the penalty for relying on the published 2013 Form 1041-ES and instructions. See Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts; and its instructions.
If you will be filing the 2014 Form 1041-ES on behalf of a qualified disability trust, be aware that the phaseout of the personal exemption will also apply for 2014 and subsequent years.