Estate and Inheritance Taxes
Estate and inheritance taxes are taxes on the transfer of property after death.
- How much revenue do state and local governments raise from estate taxes?
- How did changes in federal law affect state estate taxes?
- How much do estate taxes differ across states?
- Further reading
State and local governments collected a combined $5 billion in revenue from estate, inheritance, and gift taxes in 2015, or less than 1 percent of general revenue. New York’s $1.1 billion was the most estate tax revenue collected in 2015. Pennsylvania and New Jersey were the only other states to collect more than $500 million. In total, 10 states collected more than $100 million. Ohio repealed its estate tax in 2013 but still collected $67 million because it collected taxes levied before repeal. Many other states collected small amounts of estate tax revenue for the same reason.
Before 2001, all 50 states and the District of Columbia (DC) had estate taxes because the federal estate tax provided a credit for state estate taxes. Every state and DC had an estate tax directly linked to the federal credit—all state estate taxes were the same percentage of the federal credit. Essentially, states collected a share of the taxpayer’s federal tax payment without increasing taxes on taxpayers.
However, federal tax changes in 2001 (the Economic Growth and Tax Relief Reconciliation Act), phased out the federal credit in 2005. Because state estate taxes were linked to the federal credit, this meant all state estate taxes would disappear if states did not act. In response to the federal change some states decoupled from the credit and created their own state estate tax, some states repealed the tax outright, and others did nothing (effectively ending the tax).
In 2017, 14 states and DC levied an estate tax, and Iowa, Kentucky, Nebraska, and Pennsylvania levied an inheritance tax. Maryland and New Jersey levied both. An inheritance tax is levied on recipients rather than the estate (these taxes were never tied to the federal law).
Like the federal estate tax, all states that tax estates offer an exemption that excludes most estates from taxation. State exemptions range from $1 million in Oregon and Massachusetts to $5.49 million in Delaware and Maine (the level of the current federal exemption). The exemptions in Maryland and New York will match the federal level in 2019 and are indexed to inflation thereafter.
Most states have a top estate tax rate of 16 percent, another relic of the federal credit system. However, a few states that created new estate taxes after the federal changes also changed their rate structure. For example, Maine’s top rate is 12 percent and Washington’s top rate is 20 percent.
Back from the Dead: State Estate Taxes After the Fiscal Cliff
Norton Francis (2012)