A will usually names an executor to manage a deceased person's estate and allocate its assets according to the will's terms. Under federal tax laws, executor's fees are taxable income. How you declare these fees as income and how they are taxed depends on whether you are in the business of being an executor.
Executor Fee Basics
An executor's duties include organizing the estate's assets, paying off its creditors and distributing all of the estate's residual assets to the heirs or beneficiaries named in the will. A will typically includes a clause that specifies the fee to be paid to the estate's executor for performing these services. If a person dies without a will or if the executor named in a person's will declines to serve or cannot perform the required duties, a court will appoint an administrator and set the administrator's fee.
All executors must include the fees paid to them from an estate as part of their gross income, according to the IRS. If you are not in the trade or business of being an executor, you report these fees as non-employee compensation on line 21 of your individual tax return, IRS Form 1040. This rule applies if, for example, you're serving as executor of a relative's estate. Declaring your executor fees as non-employee compensation means that they are taxed at your marginal income tax rate, which depends on the level of your adjusted gross income.
If you are in the trade or business of being an executor, you report executor fees as self-employment income on Schedule C or Schedule C-EZ. This rule applies if, for example, you are an attorney or accountant and serve as an executor or estate administrator in the normal course of your business. Your fees are subject to self-employment tax, in addition to ordinary income tax.
If the administration of the estate requires you to operate a trade or business and if you actively participate in the business, self-employment tax may apply to your executor fees, according to the IRS. Executor fees are subject to self-employment tax under these circumstances only if the fees are related to operation of the business.
- Internal Revenue Service: Publication 559 -- Survivors, Executor, and Administrators
- Internal Revenue Service: 1040 Instructions
- Internal Revenue Service: 2010 Instructions for Schedule C -- Profit or Loss From a Business
- Internal Revenue Service: Publication 17 -- Your Federal Income Tax
- "Federal Income Taxes of Decedents, Estates and Trusts"; CCH Tax Law Editors; 2005
- Dana. S. Bean & Company: Revenue Ruling 58-5