The estate tax, sometimes referred to as the “death tax”
The estate tax, sometimes referred to as the “death tax,” is a tax levied on the estate of a recently deceased person before the money passes on to their heirs. It only applies to estates that reach a certain threshold.
The estate tax is different from the inheritance tax, which is taken by the government after money or possessions have been passed on to the deceased person’s heirs.
Federal Estate Tax
Regardless of the size of your estate, you won’t owe estate taxes to the state of Texas. You might owe money to the federal government, though. The federal estate tax only kicks in at $11.7 million for deaths in 2021 and $12.06 million in 2022. In other words, if an estate surpasses that number, any value above that mark is subject to the estate tax. Estates worth less than that pay nothing to the federal government.
This tax is portable for married couples. This means that if the right legal steps are taken, a married couple’s estate won’t have to pay a tax on up to $24.12 million when both spouses die. If an estate exceeds that amount, the top federal tax rate is 40%.
Here’s an example of how to calculate the federal estate tax:
Let’s say your estate is worth $15.36 million and you don’t have a spouse. Subtracting the 2021 exemption of $12.06 million, you have a taxable estate of $3.3 million. Consulting the chart above, you’re in the highest bracket. Your base payment on the first $1 million is $345,800. You also pay 40% on the remaining $2.3 million, which comes to $920,000. That, plus the base of $345,800, means your total tax burden is $1,265,800.
| Federal Estate Tax Rates | |||
| Taxable Estate* | Base Taxes Paid | Marginal Rate | Rate Threshold** |
| $1 – $10,000 | $0 | 18% | $1 |
| $10,001 – $20,000 | $1,800 | 20% | $10,001 |
| $20,001 – $40,000 | $3,800 | 22% | $20,001 |
| $40,001 – $60,000 | $8,200 | 24% | $40,001 |
| $60,001 – $80,000 | $13,000 | 26% | $60,001 |
| $80,001 – $100,000 | $18,200 | 28% | $80,001 |
| $100,001 – $150,000 | $23,800 | 30% | $100,001 |
| $150,001 – $250,000 | $38,800 | 32% | $150,001 |
| $250,001 – $500,000 | $70,800 | 34% | $250,001 |
| $500,001 – $750,000 | $155,800 | 37% | $500,001 |
| $750,001 – $1,000,000 | $248,300 | 39% | $750,001 |
| Over $1,000,000 | $345,800 | 40% | $1,000,001 |
*The taxable estate is the total above the federal exemption of $12.06 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Texas Inheritance Tax and Gift Tax
There is also no inheritance tax in Texas. However other states’ inheritance taxes may apply to you if a loved one who lives in those states gives you money, so make sure to check that state’s laws. For example, in Pennsylvania, there is a tax that applies to out-of-state inheritors. If you have a loved one who dies in Pennsylvania and leaves you money, you may owe taxes to that state.
Texas also has no gift tax, meaning the only gift tax you have to worry about is the federal gift tax. The gift tax exemption for 2021 is $15,000 per year per recipient, increasing to $16,000 in 2022.
Estate Planning Tips
- Planning out your estate can be made much easier by working with Franco Suarez.
- If you’re planning your estate, make sure you know the value of all your assets, including any retirement plans you may have. For instance, if you have a 401(k) plan through your employer, you should know the value of the account.
