Estate Tax Exemption, 2022

What Is the 2022 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 2022. That’s actually normal, because the amount is adjusted each year for inflation.

$12.06 million

The amount of the estate tax exemption for 2022

For 2022, the personal federal estate tax exemption amount is $12.06 million (it was $11.7 million for 2021). This means that when someone dies and the value of their estate is calculated, any amount more than $12.06 million is subject to the federal estate tax unless otherwise excluded. A married couple has a combined exemption for 2022 of $24.12 million ($23.4 million for 2021).

Key Takeaways

  • The federal estate tax exemption for 2022 is $12.06 million.
  • The estate tax exemption is adjusted for inflation every year.
  • The size of the estate tax exemption meant that a mere 0.1% of estates filed an estate tax return in 2020, with only about 0.04% paying any tax.
  • The current exemption, doubled under the Tax Cuts and Jobs Act (TCJA), is set to expire in 2026.

Understanding the 2022 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 2020, for example, just under 3.4 million Americans died from all causes. Of those, only 3,441 estates, or about 0.1%, had to file a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Of that number, just 1,275, or just under 0.04%, actually paid an estate tax. The total collected that year was $9.3 billion.

Though the $12.06 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 above $12.06 million—after adding adjusted taxable gifts and subtracting the amount greater than the exemption amount—then that excess is subject to the estate tax.

Estate Tax 2022 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 plus 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.

From 1916 to 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, and that number has been lower ever since, no doubt in part because the exemption amount has gone up—most notably with the passage of the Tax Cuts and Jobs Act (TCJA) in 2017 that doubled the exemption to $11.18 million in 2018 (indexed for inflation thereafter).

The current $12.06 million estate tax exemption, annually adjusted for inflation, is set to roll back to pre-2018 amounts in 2026.

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 million (adjusted for inflation).

President Biden proposed estate tax changes that would increase taxes on the wealthy as part of his Build Back Better Act. Those proposals included rolling back the gift and estate tax rates and exemptions to 2009 levels. However, the U.S. House of Representatives’ version of the bill, passed on Nov. 21, 2021, did not include any change in the gift and estate tax exemptions. It does, though, include a surtax of 5% on estates having a modified adjusted gross income (MAGI) of $200,000 to $499,999, with an additional 3% surtax levied on estates having a MAGI of $500,000 or more.

As of Dec. 13, 2021, the bill is awaiting approval in the U.S. Senate, where the Democrats hold a 51–50 majority by virtue of Vice President Harris being allowed to cast a tie-breaking vote as president of the Senate. But that requires a 50–50 tie vote, and Sen. Joe Manchin (D-W.Va.) announced on Dec. 19, 2021, that he will not support the bill. Stay tuned for further developments.

What Is the Estate Tax Exemption?

It is the value of a person’s estate that is exempt from being taxed by the federal government. It is adjusted annually for inflation. In 2022, the amount is $12.06 million for an individual and $24.12 million for a married couple.

How Many Estates End Up Being Taxed?

Fewer than 0.1% of U.S. estates must file tax forms, with only 0.04% of estates paying tax. Still, in 2020, the tax generated $9.3 billion of revenue for the federal government.

What Is the Future of the Estate Tax?

Then-President Donald Trump’s Tax Cuts and Jobs Act (TCJA) doubled the exemption amount to $11.18 million in 2018, indexed to inflation. However, that provision is set to expire as of Jan. 1, 2026, which would return the exemption to its previous amount of $5 million (adjusted for inflation) as of 2017.

President Biden proposed rolling back estate tax rates and exemptions to 2009 levels in his initial Build Back Better plan, but the legislation ultimately approved by the U.S. House of Representatives left the exemption amounts intact. The U.S. Senate has yet to act on the bill as of March 2022.

Article Sources
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