Most people don’t have to worry about the federal estate tax, which excludes up to $11.7 million for individuals and $23.4 million for married couples in 2021 (up from $11.58 million and $23.16 million, respectively, for the 2020 tax year). But 17 states and the District of Columbia may tax your estate, an inheritance or both, according to the Tax Foundation.
Eleven states have only an estate tax: Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Washington, D.C. does, as well. Estate taxes are levied on the value of a decedent’s assets after debts have been paid. Maine, for example, levies no tax the first $5.8 million of an estate and taxes amounts above that at a rate of 8 percent to a maximum 12 percent.
Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania have only an inheritance tax — that is, a tax on what you receive as the beneficiary of an estate. Kentucky, for example, taxes inheritances at up to 16 percent. Spouses and certain other heirs are typically excluded by states from paying inheritance taxes.
Maryland is the lone state that levies both an inheritance tax and an estate tax.
2021 state levies on estates, inheritances or both
- Connecticut: Estate tax of 10.8 percent to 12 percent on estates above $7.1 million
- District of Columbia: Estate tax of 11.2 percent to 16 percent on estates above $4 million
- Hawaii: Estate tax of 10 percent to 20 percent on estates above $5.5 million
- Illinois: Estate tax of 0.8 percent to 16 percent on estates above $4 million
- Iowa: Inheritance tax of up to 15 percent
- Kentucky: Inheritance tax of up to 16 percent
- Maine: Estate tax of 8 percent to 12 percent on estates above $5.8 million
- Maryland: Estate tax of 0.8 percent to 16 percent on estates above $5 million; inheritance tax of up to 10 percent
- Massachusetts: 0.8 percent to 16 percent on estates above $1 million
- Minnesota: 13 percent to 16 percent on estates above $3 million
- Nebraska: Inheritance tax of up to 18 percent
- New Jersey: Inheritance tax of up to 16 percent
- New York: Estate tax of 3.06 percent to 16 percent for estates above $5.9 million
- Oregon: Estate tax of 10 percent to 16 percent on estates above $1 million
- Pennsylvania: Inheritance tax of up to 15 percent
- Rhode Island: Estate tax of 0.8 percent to 16 percent on estates above $1.6 million
- Vermont: Estate tax of 16 percent on estates above $5 million
- Washington: Estate tax of 10 percent to 20 percent on estates above $2.2 million
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Federal estate tax largely tamed
The Tax Cuts and Jobs Act, signed into law in 2017, doubled the exemption for the federal estate tax and indexed that exemption to inflation. The maximum federal estate tax rate is 40 percent on the value of an estate above that amount. The higher exemption will expire Dec. 31, 2025.
Relatively few people paid federal estate taxes last year. About 4,100 estate tax returns were filed for people who died in 2020, of which only about 1,900 estates were taxable — less than 0.1 percent of the 2.8 million people expected to die this year, according to the Tax Policy Center. Because of the large exemption, few farms or family businesses pay the tax.
There is no federal tax on inheritances. Heirs can get an extra advantage when they inherit an appreciated asset, such as a stock or mutual fund. When they sell that asset, the taxable gain is generally computed favorably, based on the value of the asset at the time of the original owner’s death rather than the value when the original owner purchased it. That typically results in a smaller taxable gain for the heir.