While the federal government has inheritance taxes, 17 states and the District of Columbia take a stake when a wealthy resident dies.
State-level inheritance and estate taxes were more common prior to 2001 when a state “death tax” credit to offset those taxes was removed. However, according to the Center on Budget and Policy Priorities, inheritance and estate taxes still bring about $ 5 billion in government revenue.
According to the American College of Trust and Estate Counsel, estate and inheritance tax rates and thresholds vary by state – and, in the case of Nebraska, by district.
Inheritance tax vs. inheritance tax
Inheritance tax is calculated based on the net value of all of the deceased’s property at the time of death. The estate’s liabilities are deducted from the total value of the property to determine the net taxable estate. A resulting tax bill will be paid from the estate.
Inheritance tax is calculated based on the value of each bequest from the estate. The beneficiaries have to pay this tax, although a will sometimes states that the estate should pay this tax too.
Federal estate tax
The state inheritance tax exemption, inflation-linked, is $ 11.7 million for 2021 ($ 23.4 million for married couples). The estate value above this threshold is taxed.
State exemptions or thresholds are lower. If the state threshold is $ 5 million and the net worth of the estate is $ 6 million, the tax amount is $ 1 million.
Inheritance and inheritance taxes by state
Listed below are the states that have their own estate and inheritance taxes.
According to ACTEC, descriptions and threshold values apply from July 2021. According to the tax foundation, tax rates apply from September 2020.
- Inheritance tax threshold: $ 7.1 million
- Tax rate: 10% -12%
In 2018 Connecticut amended its inheritance tax law to extend the phased exemption through 2023 to reflect the increase in the state exemption to $ 10 million, which is inflation-indexed in the 2017 tax reform. The exception will apply from 2021:
- 2021: $ 7.1 million
- 2022: $ 9.1 million
- 2023: Federal exemption for deaths on or after January 1, 2023.
Beginning in 2019, the Connecticut state estate and gift tax cap has been reduced from $ 20 million to $ 15 million (which equates to the tax on a Connecticut estate of approximately $ 129 million).
2nd District of Columbia
- Inheritance tax threshold: $ 4 million
- Tax rate: 12% -16%
In August 2020, the DC Council passed the Estate Tax Adjustment Amendment Act of 2020, which lowered the inheritance tax threshold to $ 4 million in 2021. This will be adjusted for inflation from 2022.
- Inheritance tax tThreshold: $ 5.49 million
- Tax rate: 10% -20%
In 2018, the state reduced its exemption to $ 5 million, which is inflation-indexed, effective January 1, 2018. In September 2018, she announced that the exemption would remain at the amount available for the deceased in 2017. In addition, the state did not adjust the 2019 exemption for inflation. Effective January 1, 2020, Hawaii increased the rate of its state ownership tax on estates valued at over $ 10 million to 20%.
- Inheritance tax tThreshold: $ 4 million
- Tax rate: 0.8% -16%
In 2011, Illinois income tax rates were increased for individuals and businesses, including a reinstatement of Illinois estate tax on January 1, 2011 with an exemption of $ 2 million. That amount was increased to $ 3.5 million for 2012 and to $ 4 million for 2013 and beyond.
- Inheritance and inheritance tax
- Tax rate: up to 15%
In 2010, Iowa reintroduced its inheritance tax for those who died after December 31, 2010.
Iowa has a separate inheritance tax on transfers to anyone other than direct ancestors and descendants.
On June 16, 2021, a new law reduced the inheritance tax rates from January 1, 2021 to December 31, 2024 by 20% annually and leads to the abolition of inheritance tax on January 1, 2025.
- Inheritance tax
- Tax rate: up to 16%
Kentucky inheritance tax rates and exemptions depend on the beneficiary’s relationship to the deceased.
- Inheritance tax tThreshold: $ 5.87 million
- Tax rate: 8% -12%
In 2015, Maine lawmakers enacted law that made the Maine exception linked to the federal exception for those who died on or after January 1, 2016.
The tax rates are: 8% on the first $ 3 million above the Maine exemption; 10% on the next $ 3 million over the Maine exception; and 12% on all amounts over $ 6 million over the Maine Exemption. The new legislation did not include portability as part of the Maine Estate Tax.
On September 12, 2018, a new law increased Maine’s exemption to $ 5.6 million, adjusted for inflation, for those who died on and after January 1, 2018.
Maine also makes Maine property or tangible property transferred to a trust, limited liability company, or other intermediary company subject to taxation on the estate of a non-resident.
- Inheritance and inheritance tax
- Threshold: $ 5 million
- Tax rates: Discount: 0.8% -16%, inheritance: up to 10%
In 2018, a new law stipulated that Maryland’s threshold would be capped at a fixed amount of $ 5 million for 2019 and beyond, and would not match the federal inflation-adjusted exemption under the previous law.
In addition, the amount of federal credit used to calculate Maryland inheritance tax has continued to be capped at 16% of the amount by which the deceased’s taxable estate exceeds the Maryland threshold, unless the state death tax credit is from Section 2011 then in effect.