Survey finds many Americans are hesitant to pay taxes amid IRS staff cuts
Think you won’t get audited if the IRS staff is reduced? Experts say you might want to think again.
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Americans pay taxes throughout their lives. They may think that death is the end. it’s not.
Inheritance tax may be levied on things that the deceased owned or had certain interests in even after the deceased passed away. The taxes are paid by the person’s estate and can eat into the beneficiary’s inheritance. The federal government imposes an inheritance tax, but the threshold is high enough that most people don’t need to worry about it. Some, but not all, states also impose inheritance taxes, which you may need to worry about.
The thresholds in states with estate taxes are typically much lower than the federal threshold, and many people may reach that threshold. Certain states are also “cliff states,” meaning that once inheritance taxes exceed certain relatively low exemption thresholds, whole Not only the excess amount but also the inheritance is subject to tax. Experts say in some cases, a dollar can amount to hundreds of thousands of dollars in taxes.
Here’s what you need to know about state property taxes. Doing so can help you plan for state estate taxes and protect your loved ones from an inheritance that is far less than they were originally expected to receive.
Who pays inheritance tax?
The federal government imposes an inheritance tax, and so do more than a dozen states and the District of Columbia.
The federal tax rate ranges from 18% to 40%, depending on the amount above the threshold or exemption amount of $13.99 million per person in 2025 or $15 million in 2026. For each tax tier, you pay a basic tax amount and an additional marginal tax rate.
Because of the high threshold, most people probably won’t have to pay these taxes. For example, only 9,024 federal estate tax returns were filed in 2023, according to IRS data. Only about 40% of this was subject to tax, but the revenue generated was $44.4 billion.
However, state inheritance taxes may be a different story. Sam Tutko, a vice president at Miser Wealth Partners, said exemption levels and top tax rates are typically much lower and easier to apply than the federal government.
For example, Oregon’s exemption amount is only $1 million. “Just a few houses are probably worth that much,” Tutko said. “So if you own a home and have a $60,000 check and a 401(k), you’re probably going to be exposed to estate taxes.”
The 12 states and the District of Columbia that impose inheritance taxes are:
Where is Cliff State?
The two cliff states are Illinois and New York.
- The inheritance tax threshold in Illinois is $4 million, meaning that if your estate is valued at $4 million or less, there is no estate tax. However, over $4 million, the entire estate is subject to progressive tax rates ranging from 0.8% to 16%.
- If the value of the estate exceeds $7.16 million, New York state inheritance tax ranges from 3.06% to 16%. However, if the estate is 105% or more of the exemption amount (approximately $7.52 million in 2025), estate tax will apply to the entire estate, not just the portion above the exemption amount of $7.16 million.
Are there any other states to watch out for?
Maryland is the only state that imposes both an inheritance tax and an inheritance tax. Inheritance tax is usually paid by the person receiving the property from you.
If the value of your Maryland estate exceeds $5 million, you will be subject to estate taxes ranging from 0.9% to 16%, depending on the amount over $5 million. Separately, anyone who is not in your immediate family and receives assets over $1,000 from you may pay 10% estate tax on that gift, even if no estate tax was paid.
Other states with lower alarm thresholds include:
- Oregon: The nation’s lowest $1 million threshold “impacts not only the wealthiest households, but also many upper-middle-income households whose wealth has risen in recent years due to inflation and favorable real estate and financial market conditions,” Andrei Yushkov, senior policy analyst at the Tax Foundation’s State Tax Policy Center, said in a blog post. Progressive state tax rates range from 10% to 16%.
- Massachusetts: $2 million, and amounts above that amount are taxed at rates ranging from 0.8% to 16.0%.
- Washington: If you die by June 30, 2025, it’s $2,193,000, and if you die from July 1, 2025 to December 31, 2025, it’s $3 million. The tax rate is between 10% and 25% depending on how much your taxable estate exceeds the threshold.
- Minnesota: $3 million, tax rate ranges from 13% to 16%.
Can inheritance tax be avoided?
Experts said planning before death is the best way to avoid inheritance tax. The company will work with a team of experts including lawyers, accountants and financial advisors.
“If an individual has concerns about federal estate taxes, they need to work with a team,” Tutko said. “It’s not something you can do DIY.”
A professional will know what assets are included in your taxable assets and can find ways to reduce their value. Strategies could include annual tax-free gifts ($19,000 per person in 2025), irrevocable trusts that remove assets from taxable estates and protect them from creditors, contributions to 529s and other education accounts, and charitable contributions through wills, trusts and estate plans, experts say.
Be wary of irrevocable trusts, Tutko said. The terms and beneficiaries of an irrevocable trust cannot be changed once created.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
