Some States Avoiding Estate Tax Phase-out
January 30, 2002
Although the federal estate tax is being phased out through 2010, politicians in some states are taking steps to assure that revenue from state-level estate taxes continues to roll in. That will make residency an important factor for upper-income individuals seeking to leave something to their heirs.
- Most states pegged their inheritance-tax rates to their share of the federal estate tax.
- So far, Minnesota, Rhode Island and Wisconsin have passed laws to "decouple" their estate tax from the federal tax -- and Maine is considering a similar move, according to the Center on Budget and Policy Priorities.
- These states are generally pegging their tax to federal tax as it existed in late 2000 -- before the phase out began.
- It has been estimated that if states break the link, they can avoid losing $1.4 billion in revenue in fiscal 2003 -- and $6.5 billion in 2006.
Taxpayers used to receive a dollar-for-dollar credit against their federal tax liability for state estates taxes paid. However, the credit is being phased out between 2002 and 2005.
Source: Russell Gold, "Cross Country: States Move to Keep their Estate Taxes," Wall Street Journal, January 30, 2002.
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