![]() As of June 2021, only 17 states and the District of Columbia still levy an estate or inheritance tax. Most states had set their estate taxes to equal the amount of the federal credit, and after its elimination, a number of states simply allowed their estate taxes to disappear as well, while others affirmatively either repealed or retained their estate taxes. In 2001, policymakers cut the federal estate tax and eliminated the federal credit. In addition, a dozen states levied a separate inheritance tax. The “pick-up” taxes didn’t increase an estate’s total estate tax liability because estates received a dollar-for-dollar federal credit that reduced their federal estate tax liability by the amount they paid to the state. Until 2001, every state also levied a tax that allowed them to “pick up” a share of federal estate tax revenues. The federal government has levied an estate tax since 1916. In a state with an inheritance tax, the children each receive their $10 million bequest and then owe inheritance tax on that bequest. In a state with an estate tax, the tax is based on the value of the entire $30 million estate and is subtracted from the value of the estate before its distribution to the heirs. She leaves those assets to her three children in equal shares upon her death. It is levied on the recipients of the estate (the heirs) instead of the deceased person’s estate.įor example, consider an unmarried woman who owns a house, stocks, cash, and other assets worth $30 million. Some states levy an inheritance tax rather than an estate tax. ![]() On average, fewer than 3 percent of estates - very large ones owned by the wealthiest individuals - owe state estate taxes. A typical state with an estate tax exempts $2 to $5 million per estate and applies rates ranging from 1 percent to 16 percent to the value of property left to any heirs except a spouse. A state applies a tax rate to the value of an estate that exceeds a certain threshold both the rate and the exemption threshold differ by state. What Is an Estate or Inheritance Tax?Īn estate tax is a tax on property (cash, real estate, stock, and other assets) transferred from deceased persons to their heirs. State taxes on inherited wealth do not depend on the existence of the federal estate tax. States with these taxes should maintain them, and states without them should consider enacting them - or consider taxing inheritances as income. But these taxes have gradually eroded even as wealth and income have become more concentrated. State taxes on inherited wealth are an exception, since they apply only to the wealthiest individuals and are the primary state tax on wealth. Most state and local tax systems are upside down: the wealthy pay a smaller share of their income in these taxes than low- and middle-income people do, even though they are best able to afford it. State taxes on inherited wealth - estate and inheritance taxes - can be a powerful tool for building a more broadly shared prosperity. ![]() Further, since wealthy people are overwhelmingly white, this extreme wealth concentration reinforces barriers that make it harder for people of color to make gains. As a result, millions of American families have less wealth, and therefore fewer opportunities, than they otherwise would. A historically large share of the nation’s wealth is concentrated in the hands of a few.
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