She leaves those assets to her three children in equal shares upon her death. It is levied on the recipients of the estate (the heirs) instead of the deceased person’s estate.įor example, consider an unmarried woman who owns a house, stocks, cash, and other assets worth $30 million. Some states levy an inheritance tax rather than an estate tax. On average, fewer than 3 percent of estates - very large ones owned by the wealthiest individuals - owe state estate taxes. A typical state with an estate tax exempts $2 to $5 million per estate and applies rates ranging from 1 percent to 16 percent to the value of property left to any heirs except a spouse. A state applies a tax rate to the value of an estate that exceeds a certain threshold both the rate and the exemption threshold differ by state. What Is an Estate or Inheritance Tax?Īn estate tax is a tax on property (cash, real estate, stock, and other assets) transferred from deceased persons to their heirs.
State taxes on inherited wealth do not depend on the existence of the federal estate tax. States with these taxes should maintain them, and states without them should consider enacting them - or consider taxing inheritances as income. But these taxes have gradually eroded even as wealth and income have become more concentrated. State taxes on inherited wealth are an exception, since they apply only to the wealthiest individuals and are the primary state tax on wealth. Most state and local tax systems are upside down: the wealthy pay a smaller share of their income in these taxes than low- and middle-income people do, even though they are best able to afford it. State taxes on inherited wealth - estate and inheritance taxes - can be a powerful tool for building a more broadly shared prosperity. Further, since wealthy people are overwhelmingly white, this extreme wealth concentration reinforces barriers that make it harder for people of color to make gains. As a result, millions of American families have less wealth, and therefore fewer opportunities, than they otherwise would. Gaydos says Pennsylvania should join its neighbors in eliminating a tax that was first levied here in the 1820s to build canals.A historically large share of the nation’s wealth is concentrated in the hands of a few.
Ohio and West Virginia are among the many states with no inheritance tax. "What we're finding is a lot of parents are buying apartments, small places in Florida to claim as their residency, and then they're staying here, living with their children," says Gaydos. Gaydos says the tax forces older people to move to tax-free states. "You end up having the destruction of the inherited capital because that individual now has to sell off part of the property to pay for something that they weren't initially expecting to have to pay for," Vermeer said. Vermeer says Pennsylvania's tax often requires those who inherit to sell off their loved one's gift to pay the tax. "Eliminating the tax or even reducing it is just the right thing to do to put Pennsylvania in more competitive space with other states," Gaydos said. Gaydos says she is, once again, introducing her bill to eliminate the inheritance tax.
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