While the federal government levies an estate tax, 17 states and the District of Columbia take a cut of their own when a wealthy resident dies.
Estate and inheritance taxes at the state level were more common before 2001, when a federal “death tax” credit offsetting those taxes was repealed. But estate and inheritance taxes still bring in about $5 billion a year in state revenue, according to the Center on Budget and Policy Priorities.
Estate and inheritance tax rates and thresholds differ by state — and in Nebraska’s case, by county, according to the American College of Trust and Estate Counsel.
Estate Tax vs. Inheritance Tax
An estate tax is calculated based on the net value of all the property owned by the deceased as of the date of death. The estate’s liabilities are subtracted from the overall value of the property to determine the net taxable estate. Any resulting tax bill is paid by the estate.
An inheritance tax is calculated based on the value of individual bequests received from the estate. Beneficiaries are liable for paying this tax, although a will sometimes provides that the estate should pick up this tab as well.
Federal Estate Tax
The federal estate tax exemption, indexed for inflation, is $11.7 million for 2021 (for married couples, it is $23.4 million). Estate value above this threshold is taxed.
State exemptions or thresholds are lower. If the state threshold is $5 million, and the net value of the estate is $6 million, the amount taxed is $1 million.
Estate and Inheritance Taxes by State
Below are the states that levy their own estate and inheritance taxes.
Descriptions and thresholds are per ACTEC as of July 2021. Tax rates are per the Tax Foundation as of September 2020.
1. Connecticut
- Estate tax threshold: $7.1 million
- Tax rate: 10%-12%
In 2018, Connecticut changed its estate tax law to extend the phase-in of the exemption to 2023 to reflect the increase in the federal exemption to $10 million indexed for inflation in the 2017 tax overhaul. From 2021, the exemption will be:
- 2021: $7.1 million
- 2022: $9.1 million
- 2023: Federal exemption for deaths on or after Jan. 1, 2023.
Beginning in 2019, the cap on the Connecticut state estate and gift tax was reduced from $20 million to $15 million (which represents the tax due on a Connecticut estate of approximately $129 million).
2. District of Columbia
- Estate tax threshold: $4 million
- Tax rate: 12%-16%
In August 2020, the DC Council enacted the Estate Tax Adjustment Amendment Act of 2020, which reduced the estate tax threshold to $4 million in 2021. This will be adjusted for inflation beginning in 2022.
3. Hawaii
- Estate tax threshold: $5.49 million
- Tax rate: 10%-20%
In 2018, the state reduced its exemption, effective Jan. 1, 2018, to $5 million, indexed for inflation. In September 2018, it announced that the exemption would remain at the amount available to decedents dying during 2017. Also, the state did not adjust the exemption for inflation in 2019. Effective Jan. 1, 2020, Hawaii increased the rate of its state estate tax on estates valued at over $10 million to 20%.
4. Illinois
- Estate tax threshold: $4 million
- Tax Rate: 0.8%-16%
In, 2011, Illinois’ individual and corporate income tax rates were raised, which included a reinstatement of Illinois’ estate tax as of Jan. 1, 2011 with a $2 million exemption. That amount was increased to $3.5 million for 2012 and $4 million for 2013 and beyond.
5. Iowa
- Inheritance and estate taxes
- Tax rate: Up to 15%
In 2010, Iowa reenacted its estate tax for decedents dying after Dec. 31, 2010.
Iowa has a separate inheritance tax on transfers to others than lineal ascendants and descendants.
On June 16, 2021, a new law reduced the inheritance tax rates by 20% each year beginning Jan. 1, 2021 through Dec. 31, 2024 and results in the repeal of the inheritance tax as of Jan. 1, 2025.
6. Kentucky
- Inheritance tax
- Tax Rate: Up to 16%
Kentucky’s inheritance tax rates and exemptions depend on the relationship of the beneficiary to the decedent.
7. Maine
- Estate tax threshold: $5.87 million
- Tax rate: 8%-12%
In 2015, the Maine legislature enacted a law that tied the Maine exemption to the federal exemption for decedents dying on or after Jan. 1, 2016.
The tax rates are: 8% on the first $3 million above the Maine exemption; 10% on the next $3 million above the Maine exemption; and 12% on all amounts above $6 million above the Maine exemption. The new legislation did not include portability as part of the Maine Estate Tax.
On Sept. 12, 2018, a new law raised the Maine exemption to $5.6 million adjusted for inflation for decedents dying on and after Jan. 1, 2018.
Maine also subjects real or tangible property located in Maine that is transferred to a trust, limited liability company or other pass-through entity to tax in a non-resident’s estate.
8. Maryland
- Estate and inheritance tax
- Threshold: $5 million
- Tax rates: Estate: 0.8%-16%, Inheritance: Up to 10%
In 2018, a new law provided that for 2019 and beyond, the Maryland threshold will be capped at the fixed amount of $5 million rather than being equal to the inflation-adjusted federal exemption as provided under prior law.
Also, it continued to limit the amount of the federal credit used to calculate the Maryland estate tax to 16% of the amount by which the decedent’s taxable estate exceeds the Maryland threshold unless the Section 2011 federal state death tax credit is then in effect.