What Is the 2021 Estate Tax Exemption?

The federal estate tax exemption—the amount below which your estate is not subject to taxes when you die—is going up again for 2021. That’s actually normal because the amount is adjusted each year for inflation.

$11.7 million

The amount of the estate tax exemption for 2021

For 2021, the personal federal estate tax exemption amount is $11.7 million (it was $11.58 million for 2020). This means that when you pass away, the value of your estate is calculated and any amount more than $11.7 million is subject to the federal estate tax unless otherwise excluded. A married couple has a combined exemption for 2021 of $23.4 million.

Key Takeaways

  • The federal estate tax exemption for 2021 is $11.7 million.
  • The estate tax exemption is adjusted for inflation every year.
  • The size of the estate tax exemption means very few (fewer than 1%) of estates are affected.
  • The current exemption, doubled under the Tax Cuts and Jobs Act, is set to expire in 2026.
  • The Biden administration has proposed significant cuts to the estate tax exemption.

Understanding the 2021 Estate Tax Exemption

Given the size of the estate tax exemption, the number of Americans who die each year with an estate subject to an estate tax is small. In 2019, for example, about 2.8 million Americans died from all causes. Of those, only 4,100 estates had to file a Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return. Of that number, just 1,900 actually paid an estate tax. The total collected that year was $15.6 billion.

Though the $11.7 million estate tax exemption eliminates the vast majority of estates from paying an estate tax, it does not eliminate all of them. If you are the executor of an estate with a gross estate value—after adding adjusted taxable gifts and subtracting the amount greater than the exemption amount—that excess is subject to the estate tax.

Estate Tax 2021 Rates

Many people think that the estate tax is 40% on any taxable amount. That’s not true. For most of the federal estate tax tiers, you’ll pay a base tax, as well as a marginal rate. Current federal estate taxes max out at 40% for taxable amounts greater than $1 million. The table below shows how the tax would accumulate as the taxable amount increases.

 Taxable Amount  Estate Tax Rate  What Your Estate Would Pay
 $0 - $10,000 18% –$0 base tax
–18% on taxable amount
 $10,001 - $20,000  20%  –$1,800 base tax
–20% on taxable amount
$20,001 - $40,000 22% –$3,800 base tax
–%22% on taxable amount
$40,001 - $60,000 24% –$8,200 base tax
–24% on taxable amount
$60,001 - $80,000 26% –$13,000 base tax
–26% on taxable amount
$80,001 - $100,000 28% –$18,200 base tax
–28% on taxable amount
$100,001 - $150,000 30% –$23,800 base tax
–30% on taxable amount
$150,001 - $250,000 32% –$38,800 base tax
–32% on taxable amount
$250,001- $500,000 34% –$70,800 base tax
–34% on taxable amount
$500,001 - $750,000 37% –$155,800 base tax
–37% on taxable amount
$750,001 - $1,000,000 39% –$248,300 base tax
–39% on taxable amount
$1,000,000+ 40% –$345,800 base tax
–40% on taxable amount

Source: Internal Revenue Service

History of Estate Tax Exemption Rates

Estate tax exemptions began with the Revenue Act of 1916, which imposed a transfer of wealth tax on the estate of any deceased U.S. citizen valued above $50,000 at the time of death. The exemption remained at $50,000 until 1926 when it was raised to $100,000. In 1932, the exemption dropped back to $50,000. The lowest exemption in U.S. estate tax history was $40,000 from 1935 to 1942.

Between 1916 and 2007, the estate tax exemption gradually rose until it reached $2 million in 2007. Then, under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, the estate tax exemption gradually increased until it stood at $3.5 million in 2009. By this time, only 5,700 estates paid a transfer of wealth tax. That number has gone down steadily ever since, even as the
exemption amount has gone up, most notably with the passage of the Tax Cuts and Jobs Act (TCJA) that doubled the exemption to $11.18 million in 2018 (indexed for inflation thereafter).

The current $11.7 million estate tax exemption, annually adjusted for inflation, is set to roll back to pre-2018 amounts in 2026. The Biden administration proposes a rollback to 2009 amounts.

Estate Tax Exemption Expiration

When the TCJA doubled the estate tax exemption in 2018, the change—like most changes in that legislation—came with an expiration date. In this case, on Jan. 1, 2026, the estate tax exemption is set to drop back to what it was before 2018, $5.6 million.

Congress could extend the exemption or even boost it. That is unlikely because the current president, Joe Biden, has proposed estate tax changes that would increase taxes on the wealthy. Those proposals include rolling back the gift and estate tax rates and exemption to 2009 levels. There is no established timeline for any of these actions, and legislative negotiations could change them considerably.