Estate and inheritance taxes by state, 2024
Estate taxes and inheritance tax burdens are high. They can discourage investment and drive high-net worth individuals out of the state. The estate planning and tax avoidance techniques they produce are not only inefficient for taxpayers, but also for the entire economy. Under the Tax Cuts and Jobs Act of 2017, the federal estate tax exemption was increased. Tax exemptions are used to exempt certain income, revenue or taxpayers from taxation.
was raised from $5.49 million to $11.18 million per person, with inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck will cover less goods, bills, and services. It is sometimes called a “hidden” tax, as it makes taxpayers less wealthy due to increased costs and “bracket-creep”, while increasing government spending power.
This provision expires on December 31, 2025. Connecticut is the only state to have tied its state estate exemption threshold to the federal exemption threshold for tax year 2020. New York is the second highest exemption, with a $6.94 million exemption from its unusually high rate estate tax. New Jersey and Kentucky both have top marginal rates of 16 percent. Iowa is currently in its final year to phase out its inheritance tax. Its rates range from 1 percent – 2 percent for inheritances between $12,500 – $150,000. The top marginal rate in 2023 was set at 6 percent. This is a significant reduction. Connecticut, Iowa, Massachusetts Minnesota, New York Oregon and Washington have all had legislative discussions about changes to these taxes for 2024.Prior 2005, the federal tax credit was offered to states that assessed state-level estate taxes. The federal government offered a credit against state estate taxes, which made estate taxes attractive for states. Taxpayers paid the same amount of estate taxes regardless of whether their state imposed the tax. After the federal government fully phased out the state estate tax credit in 2005, some states stopped collecting estate taxes by default, as their provisions were directly linked with the federal credit, while others responded by repealing their tax legislatively.2024 Notable ChangesIowa reduced continued to reduce its inheritance tax rate from 5 percent to 1 percent in 2024.
New York increased its exemption threshold by $360,000 from $6.58 million to $6.94 million in 2024.
Maine increased its exemption threshold by $390,000 from $6.41 million to $6.8 million in 2024.
Connecticut aligned with the federal exemption threshold of $13.61 million in 2024.
Particularly after 2005, most states have been moving away from estate or inheritance taxes or have raised their exemption levels, as these taxes hurt states’ competitiveness and create incentives to avoid paying them, especially for wealthy taxpayers. Delaware repealed the estate tax in 2018. New Jersey also completed the phasing-out of its estate tax around the same time. It now only imposes inheritance tax. Vermont completed a gradual increase in exemptions in 2021. The exemption was raised to $5 million, up from $4.5 million in 2010. Maine raised its threshold the most, compared to values in 2023, increasing the exemption threshold by 5.7% in 2024. Connecticut also finished phasing in an increase to its exemption, matching the federal estate tax exemption, and simultaneously transitioned to the flat tax rate.
- In two more states, Hawaii and Illinois, attempts to eliminate (Hawaii) or reform (Illinois) the estate tax fell short in 2024.
- Four of the six states with inheritance taxes–Kentucky, Maryland, New Jersey, and Pennsylvania–structure their inheritance taxes such that the rate structure varies based on the proximity of the bequest recipients to the decedent. The proximity test is used in states that give priority to close family members, resulting in lower rates or higher thresholds for exemptions. The 12 states with estate taxes can increase the burdens of generational wealth transfers, which can reduce economic development. These states should look at ways to eliminate or phase out this tax in order to reduce transaction costs and prevent government overreach, especially during a time when friends and family are already grieving.
