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Wealth Transfer Taxes: How many people pay the estate tax?

The 2001 tax act, The Economic Growth and Tax Relief Reconciliation Act (EGTRRA), raised the estate tax exemption to $1 million in 2002 and to $3.5 million in a series of steps through 2009, sharply reducing the number of estates that have to pay estate taxes. For 2010 only, the estate tax was eliminated. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 put in place an estate tax with a $5 million exemption and 35% rate for 2011 and 2012 only. If Congress doesn’t act, the tax will revert to its pre-EGTRRA status in 2013 with a $1 million exemp-tion, leading to a large increase in the number of estates owing the tax.

  • Roughly 33,500 estates filed returns in 2009 but fewer than half—only 14,700—of those estates had to pay any estate tax at all. Estate tax liability totaled $20.6 billion.
  • Estates must file tax returns within nine months of the decedent’s death and taxable estates usu-ally wait as long as possible before filing. Thus, most returns filed in 2009 were for people dying in 2008 when the estate tax exemption was $2 million. About 2.4 million people died in that year; of those, only 1 in 73 generated an estate tax return and only 1 in 166 had to pay any es-tate tax.
  • The 2010 act also allowed estates of people dying in 2010 to choose between the 2010 law with no estate tax but with limited step-up in basis and the 2011-2012 law with a $5 million exemp-tion, 35 percent tax rate, and full step-up in basis1. For some estates, getting step-up in basis for all assets can make it worthwhile to pay some estate tax.
  • After a single year hiatus in 2010, the estate rate will return in 2011 with a $5 million exemption. TPC projects that 8,600 estate tax returns will be filed for people who died in that year, of which only 3,300 will owe estate tax totaling about $10.6 billion.
  • In 2013 the estate tax exemption will drop to $1 million and many more estates will have to file returns. TPC estimates that 114,600 estates of people dying that year will file estate tax returns and 52,500 of those estates will pay taxes totaling over $40 billion.
 
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   Entry 3 of 6