Executor Commission: How It’s Calculated and Taxed

An executor commission is a payment from a decedent’s estate to the person or institution responsible for administering it. This fee compensates the executor for duties that can range from inventorying assets and paying debts to filing tax returns and distributing property to beneficiaries. The role is a fiduciary one, demanding a high standard of care. The rules governing the commission amount are dictated by the laws of the state where the decedent lived and any specific instructions in the will.

Determining the Commission Amount

The method for calculating an executor’s commission follows one of two paths, largely dependent on state law. Many jurisdictions have statutes that provide a specific fee schedule. This is often a tiered percentage structure based on the value of the estate. For example, a state might permit a fee of 5% on the first $100,000 of the estate’s value, 4% on the next $200,000, and 3% on the next $700,000.

In states that do not have a legislated fee schedule, the standard for compensation is what is deemed “reasonable.” A probate court judge determines the appropriate fee after considering several factors, including:

• The size and complexity of the estate
• The amount of time the executor spent on their duties
• The skills required for the administration
• The overall success of the executor’s management

The decedent’s will can also directly influence the commission amount. A will may specify a flat fee, a particular percentage, or a custom formula for calculating the executor’s pay. It can also state that the executor should serve without any compensation. If the will’s specified fee is substantially lower than what state law would provide, an executor may have the option to renounce the will’s provision and claim the statutory fee instead.

In some cases, an executor may perform duties that go beyond the typical scope of estate administration. These are often referred to as “extraordinary services.” Such services could include managing the decedent’s business, overseeing complex litigation, or handling complicated tax audits. For these additional efforts, an executor can petition the court for extraordinary compensation.

The Probate Estate Base for Calculation

The commission an executor earns is not calculated based on the decedent’s entire net worth, but on a specific pool of assets known as the “commissionable estate” or “probate estate.” The calculation base includes assets that were titled solely in the decedent’s name and did not have a designated beneficiary. Assets included in the commissionable base are real estate held in the decedent’s name alone, bank and brokerage accounts without a payable-on-death (POD) or transfer-on-death (TOD) designation, and personal property. The value used for the calculation is the gross value of these assets before any debts or mortgages are paid.

A significant portion of a person’s wealth may be structured to pass outside of the probate process, and these assets are excluded from the base used to calculate the executor’s commission. Common examples of non-probate assets that are not part of the commissionable estate include:

• Life insurance proceeds payable to a named beneficiary other than the estate
• Retirement accounts, such as 401(k)s and IRAs, with designated beneficiaries
• Assets held within a living trust
• Property owned as joint tenants with rights of survivorship

Tax Treatment of the Commission

The payment of an executor’s commission has distinct tax consequences for both the executor who receives it and the estate that pays it. For the executor, the commission is not a tax-free inheritance but is considered taxable income. This compensation must be reported on the executor’s personal income tax return. The estate is required to report this payment to the executor and the IRS by issuing Form 1099-NEC.

From the estate’s perspective, the commission is treated as an administrative expense. This expense is deductible for tax purposes, which can reduce the estate’s overall tax liability. It can be claimed on the estate’s income tax return, Form 1041, to offset any income the estate earned during the administration period.

Alternatively, if the estate is large enough to be subject to federal estate tax, the commission can be deducted on the federal estate tax return, Form 706. For estates of decedents who die in 2025, the federal estate tax exemption is $13,990,000 per individual, so most estates will not be required to file a Form 706. The executor must choose to deduct the expense on either Form 1041 or Form 706, as it cannot be claimed on both.

Receiving or Waiving the Commission

The process for an executor to receive payment is a formal one that occurs toward the end of the estate administration. The executor must first provide a detailed accounting to the probate court and all beneficiaries, showing all assets collected, income earned, and debts paid. The commission is listed as one of the final administrative expenses, and its payment requires approval from the court.

An executor, particularly one who is also a significant beneficiary of the estate, has the option to waive the commission. This decision is often driven by tax considerations. By waiving the fee, the executor forgoes receiving taxable income and instead will receive their share of the estate as a tax-free inheritance.

For example, if an executor who is the sole beneficiary is entitled to a $30,000 commission, taking the fee would mean that $30,000 is subject to their personal income tax rate. If their combined federal and state income tax rate is 35%, they would pay $10,500 in taxes on that commission. By waiving the fee, the $30,000 remains in the estate and is distributed to them as part of their inheritance, which is not subject to income tax.

To formally waive the commission, an executor must take a clear and timely step. This is accomplished by filing a written, signed waiver document with the probate court. This waiver must be executed before the executor takes any actions that would imply acceptance of the fee. An effective waiver prevents the IRS from arguing that the executor had “constructive receipt” of the income.