The taxable amount is to be reported on Form 1041 line 8 as Other Income. If passed through to trust beneficiaries, this Distributable Net Income is reported in box 5 Other Portfolio and Nonbusiness Income, on the beneficiaries' Schedule K-1.
Federal tax withholding goes on Form 1041 line 14. The tax withholding cannot be passed through to trust beneficiaries. Any refund is payable to the trust.
