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State tax policy
Personal income tax
Sales tax
Corporate income tax
Excise tax

Estate and inheritance taxes are levied on the property of deceased individuals (decedents). These taxes are levied by both the federal government and some state governments. Although the terms "estate tax" and "inheritance tax" are sometimes used synonymously, there are differences between the two. Generally speaking, anestate tax is applied to the value of a decedent's property and is paid from the estate before distribution to any heirs. Conversely, aninheritance tax is paid by the heir or heirs of a decedent's assets.^[1][2][3]

Federal estate tax

TheInternal Revenue Service defines the estate tax as "a tax on your right to transfer property at your death." An estate consists of a deceased individual's property, which can include real estate, cash, business interests, stocks and other assets. As of 2015, only estates with a taxable value of more than $5.43 million were subject to the tax. This exemption threshold changes according to inflation; see the table below. The maximum rate of estate tax is 40 percent.^[2][4][5]

The estate tax was first levied by the federal government in 1916. The maximum estate tax rate peaked at 77 percent between 1941 and 1976. Between 1977 and 2012, the rate declined to 35 percent. In 2013, the rate increased to 40 percent. The table below details historical estate tax rates.^[6]

State inheritance and estate taxes

Some states levy additional estate and inheritance taxes. According to a 2016 report by the Tax Foundation, a total of 15 states and the District of Columbia levy an estate tax, while six states levy an inheritance tax. Only two states,Maryland andNew Jersey, levy both an estate tax and an inheritance tax.^[3]

2016

The table below summarizes the estate tax rates of the 50 states in 2016..^[7][8][9]

2015

The table below summarizes 2015 estate tax rates. Washington levied the highest maximum estate tax rate at 19 percent. Meanwhile, Tennessee levied the lowest maximum estate tax rate at 9.5 percent. Tennessee's estate tax was phased out in 2016.^[3][9]

A total of six states levy an inheritance tax. The table below summarizes the inheritance tax rates for these six states in 2015. Inheritance tax liability often varies depending on the relationship of the heir to the decedent. For instance, a decedent's spouse or child may have a different inheritance tax liability than the decedent's sibling or a friend.

For the purposes of the below table, Class A beneficiaries are spouses, children and often siblings. Class B beneficiaries are non-immediate family members. Class C beneficiaries are non-family members. Class D is for-profit organizations, Class E is foreign charitable organizations, Class F is unknown heirs and Class G is recognized charities.^[9]

2014

The table below summarizes 2014 estate tax rates. Washington levied the highest maximum estate tax rate at 19 percent. Meanwhile, Tennessee levied the lowest maximum estate tax rate at 9.5 percent.^[3]

The table below summarizes 2014 inheritance tax rates and provisions. Inheritance tax liability often varies depending on the relationship of the heir to the decedent. For instance, a decedent's spouse or child may have a different inheritance tax liability than the decedent's sibling or a friend. For the purposes of the below table, Class A heirs are defined as "spouses, children and often siblings." Non-immediate family members are considered Class B heirs, while non-family beneficiaries are considered Class C heirs. In New Jersey, Class A heirs are defined generally as parents, grandparents, spouses and children. Class C heirs are siblings and spouses of children, and Class D heirs are all other beneficiaries.^[3][10]

Debate

The estate tax is a source of considerable controversy. In 2009,RepresentativeJared Polis (D-Colorado) argued in favor of the estate tax. "Without the estate tax," he said, "you in effect have an aristocracy of the wealthy, which means you pass down the ability to command resources of the nation based on heredity rather than merit. America is and should be a meritocracy." Chye-Ching Huang and Nathaniel Frentz, in a 2013 report for the Center on Budget and Policy Priorities, praised the tax as "an important source of federal revenue for nearly a century" that "limits, to a modest degree, the large tax breaks that extremely wealth households get on their wealth as it grows, which can otherwise go completely untaxed."^[11]

Meanwhile, critics contend that estate and inheritance taxes are tantamount to "death taxes." In 2009, RepresentativeLouie Gohmert (R-Texas) said, "After someone dies, and someone comes in and steals from them, we consider that reprehensible, that's just despicable. But when the government comes in—because we have the power to pass laws and legalize theft—it's OK." The Tax Foundation has argued that "estate taxes discourage entrepreneurship and lead to large tax compliance costs."^[11][12]

See also

• Taxes on the ballot
• Personal income tax
• Sales tax
• Corporate income tax

External links

• Search Google News for this topic
• Tax Policy Center
• Federation of Tax Administrators
• Tax Foundation

Footnotes

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