Federal inheritance tax refers to a tax on assets transferred from a deceased person's estate to their heirs. Although inheritance tax is more commonly imposed by individual states, federal estate tax applies to high-value estates across the United States. Understanding federal inheritance tax can help heirs plan for any potential tax liabilities.
How Does Federal Inheritance Tax Work?
Technically, the federal government doesn't impose an inheritance tax, which is a tax on the individual inheritor. Instead, it imposes an estate tax, which taxes the overall value of a person's estate after their death if it exceeds a certain threshold. Currently. . , the federal estate tax applies to estates valued at over $12.92 million (2023), with rates ranging from 18% to 40% on amounts above this exemption.
Who Must Pay Federal Estate Tax?
Only estates exceed the exemption threshold are subject to federal estate tax. The executor of the estate is responsible for filing and paying this tax, using funds from the estate itself, before assets are distributed to heirs. This means that the beneficiaries of estates below the exemption threshold are not impacted by federal estate tax.
What Is the Difference Between Estate Tax and Inheritance Tax?
While estate tax is paid by the deceased's estate before assets are distributed, inheritance tax (levied by some states) is paid by the individual inheritor. The US federal government imposes only an estate tax, while a handful of states impose their own inheritance taxes.
What is Federal Inheritance Tax? Who is Required to Pay It? - I hope this article was informative.
