Estate Tax Exemption Amount Goes Up for 2023

Posted by Ronald J. Fichera Aug 04, 2023

As the estate tax exemption amount increases, fewer estates are subject to the federal tax.

The federal estate tax exemption is going up again for 2023. The amount is adjusted each year for inflation, so that's not a surprise. But it's still a big deal when the new exemption is announced each year because there's a lot at stake for certain high-income Americans.

2023 Estate Tax Exemption

Generally, when you die, your estate is not subject to the federal estate tax if the value of your estate is less than the exemption amount. For people who pass away in 2023, the exemption amount will be $12.92 million (it's $12.06 million for 2022). For a married couple, that comes to a combined exemption of $25.84 million.

Estate Tax Rate

As you might guess, only a small percentage of Americans die with an estate worth $12.92 million or more. But for estates that do, the federal tax bill is pretty steep. Most of the estate's value is taxed at a 40% rate.

Rate

Taxable Amount (Value of Estate Exceeding Exemption)

18%

$0 to $10,000

20%

$10,001 to $20,000

22%

$20,001 to $40,000

24%

$40,001 to $60,000

26%

$60,001 to $80,000

28%

$80,001 to $100,000

30%

$100,001 to $150,000

32%

$150,001 to $250,000

34%

$250,001 to $500,000

37%

$500,001 to $750,000

39%

$750,001 to $1 million

40%

Over $1 million

As the table below shows, the first $1 million is taxed at lower rates – from 18% to 39%. That results in a total tax of $345,800 on the first $1 million, which is $54,200 less than what the tax would be if the entire estate were taxed at the top rate. However, once you get past the first $1 million, everything else is taxed at the 40% rate.

Historical Estate Tax Exemption Amounts

Since the federal estate tax was reformed in 1976, the estate tax exemption has only gone up (see table below). In most cases, the increase is modest, such as a simple adjustment for inflation. However, at times, the exemption amount has jumped considerably. For example, it shot up from $675,000 to $1 million in 2002, from $1 million to $5 million in 2011, and from $5.49 million to $11.18 million in 2018.

But that pattern is scheduled to change. The 2018 estate tax examption increase is only temporary, so the base exemption amount is set to drop back down to $5 million (adjusted for inflation) in 2026.

Period

Exemption Amount

1977 (Quarters 1 and 2)

$30,000

1977 (Quarters 3 and 4)

$120,667

1978

$134,000

1979

$147,333

1980

$161,563

1981

$175,625

1982

$225,000

1983

$275,000

1984

$325,000

1985

$400,000

1986

$500,000

1987 through 1997

$600,000

1998

$625,000

1999

$650,000

2000 and 2001

$675,000

2002 through 2010

$1,000,000

2011

$5,000,000

2012

$5,120,000

2013

$5,250,000

2014

$5,340,000

2015

$5,430,000

2016

$5,450,000

2017

$5,490,000

2018

$11,180,000

2019

$11,400,000

2020

$11,580,000

2021

$11,700,000

2022

$12,060,000

2023

$12,920,000

State Estate Taxes

Just because your estate isn't hit with the federal estate tax, that doesn't necessarily mean you're completely off the hook. Your estate might be subject to a state estate tax. Twelve states and the District of Columbia impose their own estate tax,  and the state exemption amounts are often much lower than the federal estate tax exemption. For instance, the exemption amount in Massachusetts and Oregon is only $1 million.

Plus, six states levy an inheritance tax,  which is paid directly by your heirs. (Maryland has both an estate tax and an inheritance tax!) So, just because your estate isn't worth millions of dollars, you children and grandchildren might end up with less in their pockets when you die than what you're expecting.

This article was provided by Rocky Mengle, originally published in Kiplinger's Personal Finance Magazine, and brought to you by the Ronald J. Fichera Law  Firm , where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, contact us  today!

 

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.