Federal Estate Tax Rates
The estate tax is a federal and state tax on the privilege of transferring wealth to heirs. This article will discuss the current estate tax rates.
The estate tax applies to assets that aren’t held by a surviving spouse and is generally only paid when an estate’s value exceeds the threshold. The threshold is adjusted each year to keep pace with inflation. Most families will never pay this tax, and many can avoid it entirely by keeping their estates below the threshold. The top federal rate is 40%, but the average estate tax rate is 18%. The vast majority of estates don’t pay any tax because only the richest estates are worth enough to trigger the tax. Billionaires typically pay no tax at all, and even the estates of small family farms and businesses seldom pay any tax. In fact, just 20 such estates pay federal estate taxes each year.
Many people are surprised to learn that the federal estate tax only affects a small percentage of Americans. In fact, it affects only about 2.7 million people each year. It is estimated that a full repeal of the estate tax would reduce federal revenues by about $225 billion over 10 years. That’s a lot of money that could go toward funding programs important to the American public.
Federal and State Estate Taxes
Most states have their own estate taxes, but their rates vary and they are generally based on the state of residence of the deceased person. Some states have inheritance taxes, too, though these are more common in states that don’t have an estate tax.
Both federal and state estate taxes are levied on a deceased person’s “taxable estate,” which is a calculation of all of an estate’s assets less any allowable deductions and exemptions, like the homestead exemption. The values of the assets are figured using fair market value rather than their original cost at the time of purchase by the deceased person. This protects the estate from paying taxes on the peak value of an asset that has since fallen and helps to account for any income earned on an investment.
| Federal Estate Tax Rates | |||
| Taxable Amount | Estate Tax Rate | Amount You Pay | |
| $1 – $10,000 | 18% | – $0 base tax – 18% on taxable amount | |
| $10,001 – $20,000 | 20% | – $1,800 base tax – 20% on taxable amount | |
| $20,001 – $40,000 | 22% | – $3,800 base tax – 22% on taxable amount | |
| $40,001 – $60,000 | 24% | – $8,200 base tax – 24% on taxable amount | |
| $60,001 – $80,000 | 26% | – $13,000 base tax – 26% on taxable amount | |
| $80,001 – $100,000 | 28% | – $18,200 base tax – 28% on taxable amount | |
| $100,001 – $150,000 | 30% | – $23,800 base tax – 30% on taxable amount | |
| $150,001 – $250,000 | 32% | – $38,800 base tax – 32% on taxable amount | |
| $250,001 – $500,000 | 34% | – $70,800 base tax – 34% on taxable amount | |
| $500,001 – $750,000 | 37% | – $155,800 base tax – 37% on taxable amount | |
| $750,001 – $1 million | 39% | – $248,300 base tax – 39% on taxable amount | |
| $1 million+ | 40% | – $345,800 base tax – 40% on taxable amount | |
