Credit for State Death Taxes
Federal estate tax law allows a credit against the federal estate tax for any estate, inheritance, legacy, or succession taxes actually paid to any state of the United States or the District of Columbia with respect to any property included in a decedent's gross estate. This credit does not include any taxes paid with respect to the estate of a person other than the decedent.
The credit for state death taxes is available only to the extent that it does not exceed the estate's tax liability after reduction by the unified credit. The maximum allowable state death tax credit is based on the size of the "adjusted taxable estate," which, for purposes of the credit, is the taxable estate reduced by $60,000 (the amount of the specific exemption allowed before 1977).
Code Sec. 2011 of the Internal Revenue Code prescribes a graduated rate table (see below) under which the maximum amount of credit allowable for state death taxes is determinable. The credit is allowed only with respect to that part of the adjusted taxable estate that exceeds $40,000.
| State Death Tax Credit Table |
| Adjusted Taxable Estate From: |
To: |
Credit |
Plus Percentage Rate |
On Excess Over: |
| $0 |
$40,000 |
$0 |
0% |
$0 |
| $40,000 |
$90,000 |
$0 |
0.8% |
$40,000 |
| $90,000 |
$140,000 |
$400 |
1.6% |
$90,000 |
| $140,000 |
$240,000 |
$1,200 |
2.4% |
$140,000 |
| $240,000 |
$440,000 |
$3,600 |
3.2% |
$240,000 |
| $440,000 |
$640,000 |
$10,000 |
4% |
$440,000 |
| $640,000 |
$840,000 |
$18,000 |
4.8% |
$640,000 |
| $840,000 |
$1,040,000 |
$27,600 |
5.6% |
$840,000 |
| $1,040,000 |
$1,540,000 |
$38,800 |
6.4% |
$1,040,000 |
| $1,540,000 |
$2,040,000 |
$70,800 |
7.2% |
$1,540,000 |
| $2,040,000 |
$2,540,000 |
$106,800 |
8% |
$2,040,000 |
| $2,540,000 |
$3,040,000 |
$146,800 |
8.8% |
$2,540,000 |
| $3,040,000 |
$3,540,000 |
$190,800 |
9.6% |
$3,040,000 |
| $3,540,000 |
$4,040,000 |
$238,800 |
10.4% |
$3,540,000 |
| $4,040,000 |
$5,040,000 |
$290,800 |
11.2% |
$4,040,000 |
| $5,040,000 |
$6,040,000 |
$402,800 |
12% |
$5,040,000 |
| $6,040,000 |
$7,040,000 |
$522,800 |
12.8% |
$6,040,000 |
| $7,040,000 |
$8,040,000 |
$650,800 |
13.6% |
$7,040,000 |
| $8,040,000 |
$9,040,000 |
$786,800 |
14.4% |
$8,040,000 |
| $9,040,000 |
$10,040,000 |
$930,800 |
15.2% |
$9,040,000 |
| $10,040,000 |
------------ |
$1,082,800 |
16% |
$10,040,000 |
Phase out and repeal of credit. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) gradually phases out the state death tax credit between 2002 and 2004, with the credit repealed for the estates of decedents dying after December 31, 2004. Beginning in 2005, the state death tax credit is replaced by a deduction for state death taxes paid until the repeal of the estate tax in 2010. The credit is reduced by 25 percent for the estates of decedents dying in 2002, 50 percent for the estates of decedents dying in 2003 and 75 percent for the estates of decedents dying in 2004.
To illustrate the operation of the phase out, the maximum state death tax credit allowable for decedents dying in 2002 through 2004 under EGTRRA (applicable to those adjusted taxable estates over $10,040,000) will be as follows: for 2002, $812,100 plus 12 percent of the excess over $10,040,000; for 2003, $541,400 plus 8 percent of the excess over $10,040,000; and for 2004, $270,700 plus 4 percent of the excess over $10,040,000.
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