Who Actually Pays Federal Estate Tax
Almost nobody. With a $15 million per-person exemption in 2026, well under one percent of American estates owe any federal estate tax at all. The tax has an outsized presence in public conversation relative to how rarely it applies, which leads a lot of families to worry about a bill they will never receive.
That does not make the calculation pointless. Two groups genuinely need it: families whose estates are near or above the threshold, particularly where illiquid assets like a business or farmland make up most of the value, and families in states with their own estate tax, where the exemption can be a fraction of the federal one and a fairly ordinary estate becomes taxable.
The 2026 Exemption and the Sunset That Never Happened
This is the part where a lot of published advice is now simply wrong, so it is worth being precise. Under the 2017 Tax Cuts and Jobs Act, the elevated exemption was scheduled to expire on January 1, 2026 and fall back to roughly $7 million per person. Enormous amounts of planning were built around beating that deadline.
It did not happen. The One Big Beautiful Bill Act, signed on July 4, 2025, amended the underlying statute to set the basic exclusion amount at $15,000,000 for 2026 and removed the sunset, and the IRS confirmed the figure in Revenue Procedure 2025-32. So instead of halving, the exemption rose from $13,990,000 in 2025 to $15,000,000. It is indexed for inflation from 2027 onward.
If you come across an article warning that the exemption drops in 2026, check its date. Anything written before mid-2025 is describing law that was changed before it took effect.
How This Calculator Works
The federal calculation follows the order the tax code applies, which matters because doing it in a different order produces a different answer.
The prior-gifts line is the one simpler calculators skip, and skipping it understates the tax. Large lifetime gifts do not vanish from the picture — they consumed exemption when they were made and get added back into the base at death. An estate of $14 million looks safely under the threshold until $3 million of prior taxable gifts pushes the base to $17 million and creates an $800,000 bill.
The graduated rate schedule technically runs from 18% to 40%, but the unified credit shelters everything up to the exemption amount, so every dollar that is actually taxed sits in the 40% bracket. That is why a flat 40% on the excess is both the simplest and the correct way to model it.
Portability: How Couples Reach $30 Million
When the first spouse dies, anything left to a surviving US-citizen spouse passes tax-free under the unlimited marital deduction. That is useful, but it also means the first spouse's $15 million exemption goes unused — and historically it was simply lost.
Portability fixed that. The unused portion, called the DSUE amount, can transfer to the surviving spouse and stack on top of their own exemption, giving a combined shelter of up to $30 million. Enter it in the Inherited Exemption field to see the effect.
The critical detail is that portability is not automatic. The executor has to file a federal estate tax return for the first spouse and affirmatively elect it, even though no tax is owed and no return would otherwise be required. Families skip this filing all the time because it feels unnecessary, and the cost of that omission can be several million dollars of shelter that cannot be recovered later. If you take one action item from this page, it is that one.
One thing portability does not cover: the generation-skipping transfer tax exemption, also $15 million in 2026, is not portable. It has to be allocated during life or at death, which is a large part of why trust structures still matter for families planning across three generations.
State Estate and Inheritance Taxes
This is where ordinary estates get caught. Around a dozen jurisdictions run their own estate tax with exemptions set far below the federal level, and a state exemption of one or two million dollars turns a paid-off house plus retirement accounts into a taxable estate.
State estate tax is calculated independently and is not offset by the federal exemption. An estate can owe zero federally and a substantial amount to a state in the same year — the State tab shows exactly that scenario. Because state thresholds and rates are changed by legislatures fairly often, the calculator asks you to enter your state's current exemption and rate rather than relying on a table that could be out of date by the time you read it. Your state department of revenue publishes both.
Jurisdictions with a state-level estate tax as of 2026 include Connecticut, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Confirm the current figures before relying on them — New York in particular applies a cliff that can tax the entire estate rather than just the excess once you exceed the threshold by a small margin.
Estate Tax vs. Inheritance Tax
These get used interchangeably in conversation and they are not the same thing. Estate tax comes out of the estate before anything is distributed — the heirs receive what is left. Inheritance tax is charged to the person receiving the assets, and the rate typically depends on how closely related they were to the deceased, with spouses and children often exempt or taxed lightly and distant relatives or unrelated beneficiaries taxed most heavily.
There is no federal inheritance tax. A small group of states — Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — impose one, and Maryland is unusual in having both an estate tax and an inheritance tax. If you are inheriting rather than planning an estate, the inheritance tax rules of the deceased person's state are what apply to you, not your own.
Legally Reducing a Taxable Estate
The simplest lever is the annual gift exclusion: $19,000 per recipient per year in 2026, or $38,000 for a married couple electing to split gifts. These gifts leave the estate permanently and use none of the lifetime exemption, so they compound quietly. The Gifting Plan tab prices this — four recipients over ten years moves $760,000 out of an estate and saves $304,000 in federal tax at the 40% rate, using nothing more exotic than writing cheques.
Beyond that, the common approaches are charitable bequests, which are fully deductible; irrevocable life insurance trusts, which keep a policy's death benefit outside the taxable estate; and various trust structures for moving appreciating assets out early so future growth happens outside the estate. Each has real trade-offs around control, irreversibility and complexity.
One counterintuitive point worth knowing before gifting appreciated assets: property inherited at death generally receives a stepped-up cost basis equal to its date-of-death value, wiping out unrealized capital gains for the heirs. A lifetime gift instead carries your original basis over to the recipient. For a highly appreciated asset in an estate that will not owe estate tax anyway, holding it is often better for the family than giving it away.
A Worked Example
Take a $20 million estate in 2026 with no deductions, no prior gifts and no inherited exemption. The first $15 million is sheltered, leaving $5 million exposed. At 40% that is $2,000,000 in federal estate tax, and heirs receive $18 million — an effective rate of 10% across the whole estate, not 40%.
Now change one thing. Suppose the deceased's spouse had died earlier and the executor filed Form 706 to elect portability, passing along a full $15 million DSUE. The available exemption becomes $30 million, the estate falls entirely below it, and the tax drops to zero. That single filing is worth $2 million here.
Finally, consider a $14 million estate that made $3 million of taxable gifts during life. The estate alone looks comfortably under the threshold, but adding the prior gifts back produces a $17 million base, $2 million above the exemption, and $800,000 of tax on an estate most people would assume was safe.
Frequently Asked Questions
What is the federal estate tax exemption for 2026?
It is $15,000,000 per person. The One Big Beautiful Bill Act, signed in July 2025, set that figure and made it permanent rather than letting it fall by roughly half as the previous law scheduled, and the IRS confirmed it in Revenue Procedure 2025-32. A married couple can shelter up to $30,000,000 between them. The exemption is inflation-indexed from 2027 onward.
Didn't the estate tax exemption drop in half in 2026?
No, and this is the single most common piece of outdated advice still circulating. Under the 2017 tax law the elevated exemption was scheduled to sunset on January 1, 2026 back to roughly $7 million per person. The One Big Beautiful Bill Act removed that sunset before it took effect, so the exemption rose to $15 million instead of falling. Articles written before mid-2025 that warn about the drop are describing a law that was changed.
How many estates actually owe federal estate tax?
Very few — well under one percent. With a $15 million per-person exemption, an estate has to be extraordinarily large before any federal tax is due, and married couples with proper planning can pass double that. For most families the practical questions are about state-level taxes, probate, and the step-up in basis rather than the federal estate tax.
What is portability and do I have to do anything to get it?
Portability lets a surviving spouse add their deceased spouse's unused exemption, called the DSUE amount, to their own. It is not automatic. The executor must file a federal estate tax return (Form 706) for the first spouse to die and make the election on it, even when no tax is owed. Missing that filing permanently forfeits what can be millions of dollars of shelter, and it is one of the most expensive administrative oversights in estate planning.
What is the difference between estate tax and inheritance tax?
Estate tax is paid by the estate itself, out of the assets, before anything is distributed — the federal tax and most state-level taxes work this way. Inheritance tax is paid by the person receiving the assets, and the rate usually depends on how closely related they were to the deceased, with spouses and children often exempt or lightly taxed. There is no federal inheritance tax; only a handful of states impose one.
Do lifetime gifts reduce my estate tax?
Gifts within the annual exclusion do, because they leave your estate permanently without using any lifetime exemption. In 2026 that is $19,000 per recipient per year, or $38,000 for a married couple electing to split gifts. Larger gifts do not reduce the eventual tax on their own — they consume your lifetime exemption instead and get added back into the calculation at death, which is exactly what the prior-gifts field in this calculator accounts for.
Which states have their own estate or inheritance tax?
As of 2026, around a dozen jurisdictions impose a state estate tax, including Connecticut, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. A separate small group — Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — imposes an inheritance tax paid by the recipient. Maryland is unusual in having both. State exemptions are often far lower than the federal one, so an estate can owe state tax while owing nothing federally.
Does my estate get a step-up in basis?
Generally yes. Assets passing through an estate usually receive a new cost basis equal to their fair market value on the date of death, which can wipe out decades of unrealized capital gains for the heirs. This is a major reason holding an appreciated asset until death can be more tax-efficient than gifting it during life, since a lifetime gift normally carries the original basis over to the recipient.
This calculator provides estimates for general informational purposes only and is not legal, tax or financial advice. Estate taxation involves valuation questions, trust structures, state-specific rules and elections that materially change the outcome and cannot be captured by any calculator. Federal figures shown reflect the 2026 basic exclusion amount of $15,000,000 and the 40% top rate under the One Big Beautiful Bill Act as confirmed in IRS Revenue Procedure 2025-32; state rules vary and change frequently. Consult a qualified estate attorney or CPA before acting on any figure here.