taxes

Estate Tax Exemption Amount Goes Up for 2021

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 2021. 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.

2021 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 2021, the exemption amount will be $11.7 million (it's $11.58 million for 2020). For a married couple, that comes to a combined exemption of $23.4 million.

Estate Tax Rate

As you might guess, only a small percentage of Americans die with an estate worth $11.7 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.

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.

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

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 increase is temporary, so the base exemption amount is set to drop back down to $5 million (adjusted for inflation) in 2026. Plus, if Joe Biden is elected president, the federal estate tax exemption might drop back down sooner. He has called for a reduction of the exemption amount to pre-2018 levels.

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

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.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Want More Tax-Free Retirement Income? One Man’s Whole Life Decision
life insurance

Want More Tax-Free Retirement Income? One Man’s Whole Life Decision

Whole life insurance might not be something that’s on your retirement planning radar, but for this client, here’s how it served his need to control ta…
February 23, 2021
The Current Plan for $1,400 Checks
Coronavirus and Your Money

The Current Plan for $1,400 Checks

Here's what you need to know about the stimulus check plan currently being considered in Congress for President Biden's COVID-relief package.
February 18, 2021

Recommended

33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
February 24, 2021
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

There were a lot of tax changes for the 2020 tax year. Get familiar with them now – before you file your 2020 tax return.
February 8, 2021
Estate Planning Checklist: 5 Tasks to Do Now, While You’re Still Well
estate planning

Estate Planning Checklist: 5 Tasks to Do Now, While You’re Still Well

Being prepared is going to feel great, you’ll see. As you work your way down the list, make sure you communicate your decisions with your loved ones.
February 8, 2021
Worried about Passing Down a Big IRA? Consider a CRT
estate planning

Worried about Passing Down a Big IRA? Consider a CRT

Charitable remainder trusts give you more options and more control on how your heirs inherit now that the “stretch” IRA is a thing of the past.
February 8, 2021