State Death Taxes Live On
January 8, 2004
The federal government is slated to phase out its "death tax" by 2010, but 18 states plus the District of Columbia have opted to retain it within their borders. They join a handful of others with separate inheritance taxes -- imposed on the heirs rather than the estates.
New York is a prime example:
- In 2001, New Yorkers will be able to leave heirs $1.5 million without paying federal taxes, but because New York's estate-tax exclusion is $1 million, someone with a $1.5 million taxable estate will owe the state $64,400.
- In 2009, the federal exemption rises to $3.5 million, but a $3.5 million taxable estate will owe New York $229,200.
- Massachusetts is allowing its estate-tax exclusion to rise but to thresholds below the federal limits; in 2003, Massachusetts' taxpayers can shield $700,000 from state estate tax, with increases to a freezing point of $1 million by 2006.
- Illinois is following the federal limits, but will freeze its exclusion at $2 million starting in 2009.
As a help to taxpayers, starting in 2005, the Internal Revenue Service will let estates deduct state taxes from their federal returns. In 2005, this those in the top state estate-tax bracket will pay only 8.5 percent instead of 16 percent.
Source: Anne Tergesen, "The Many Lives of The Death Tax," BusinessWeek, December 22, 2003.
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