What Is the "Death Tax" and How Does It Work?

The term “death tax” is often used to describe federal and state estate taxes, which apply when wealth is transferred after someone’s death. While not an official legal term, it generally refers to taxes on large estates that exceed exemption thresholds set by law. In practice, only a small percentage of estates are subject to the death tax because of these high exemption limits.

A financial advisor can help you navigate the various death taxes and potentially limit your tax liability.

What Is the Death Tax?

The death tax is a colloquial term for estate tax, which is imposed on the transfer of wealth when someone passes away. Unlike income or sales taxes, it is levied on the overall value of an estate before assets are distributed to heirs. The federal government sets a large exemption threshold, meaning only estates valued above that amount are subject to taxation. Some states also impose their own estate or inheritance taxes, with different exemption levels and rates.

The way the tax is calculated depends on the estate’s gross value, which includes cash, real estate, investments and other assets. Debts, funeral expenses, and certain deductions are subtracted to determine the taxable estate. The tax rate is progressive, meaning larger estates may face higher percentages. It’s worth noting that lifetime gifts and prior transfers can also affect how much of an estate is ultimately taxable.

This tax is often confused with an inheritance tax, which is assessed on the beneficiaries rather than the estate itself. Inheritance taxes are rare and exist only in a handful of states, while the federal system applies strictly to estates.

“The estate tax was first imposed in the 1700s on and off to help fund various wars, but after World War I, it became a permanent fixture,” says Joshua Zimmelman, president of Westwood Tax & Consulting in New York. “Some people argue that there is no purpose and it’s an unfair tax, but it has persisted for years.”

But if it is unfair, it’s unfair to a very small percentage of Americans. That’s because it only applies to very large estates. In fact, only 8,130 estate tax returns were filed in 2022, but those added up to more than $22.5 billion in value, according to the IRS. ¹

Breaking Down the Federal Estate Tax

In 2025, an estate tax filing is only required for estates with combined gross assets and prior taxable gifts exceeding $13.99 million, or $27.98 million for married couples. Under the One Big Beautiful Bill Act, which President Donald Trump signed into law in July 2025, that threshold will increase to $15 million in 2026 ($30 million for married couples).

Below are the tax rates you can expect to pay if your estate triggers the federal estate tax. For clarity, each of the taxable amounts shown in the table describe the amount by which your estate’s value exceeds the exemptions above.

2025 Federal Estate Tax Rates

Taxable Amount	Estate Tax Rate	What You Pay
$1 – $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 million	39%	– $248,300 base tax – 39% on taxable amount
$1 million+	40%	– $345,800 base tax – 40% on taxable amount

State-Level Death Taxes

It’s worth noting that some states already impose an estate tax on top of the federal government’s estate tax. The list of states that fall into this category include:

In many states, the exemption for the estate tax is less than the federal government’s. It ranges as low as $1 million in Oregon. Massachusetts also had a $1 million exemption, but raised it to $2 million for deaths that occurred in 2023 and after.

The term “death tax” can also refer to inheritance tax, which is imposed by only a small group of states:

Kentucky
Maryland
Nebraska
New Jersey
Pennsylvania

All of these states have exemptions for surviving spouses who inherit estates.

The difference between an estate tax and an inheritance tax is that an inheritance tax is applied once assets have been inherited. An estate tax is applied before beneficiaries receive assets.

Pros and Cons of the Death Tax

Only a very small percentage of estates will be subjected to an estate or inheritance tax. Here’s the good and bad:

Pros of the Death Tax

High threshold: As of tax year 2025, your gross assets need to exceed $13.99 million for you to be subject to the federal estate tax ($15 million in 2026). That means that only families that have amassed considerable wealth need to worry about it.
Small target: Death tax is only hitting the wealthiest Americans. The vast majority of taxpayers won’t ever be subject to these taxes.

Cons of the Death Tax

Double taxation: You’ll have to pay taxes when you earn money and again when you pass along your estate. And if the estate continues to be passed along to future generations, it can continue to get taxed.
Massive loopholes: Many wealthy Americans avoid paying estate taxes, even if they hit the gross assets threshold. Zimmelman says you can reduce the size of your taxable estate by giving gifts to your beneficiaries. In 2025, you may give up to $19,000 per person to as many people as you’d like. Gifts to your spouse as well as to charity are tax-free no matter what the amount.

Bottom Line

While death taxes can take a bite out of an estate, they only impact very few of us. Unless you have many millions of dollars in assets, the federal estate tax won’t affect you. And only residents of certain states will need to pay these taxes at a state level.

Tax Planning Tips

If your net worth is high enough that you need to worry about estate and inheritance taxes, you may want to consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A tax return calculator can help if you’re trying to estimate how much you’ll owe. But if you’re unsure of how your earnings and assets will affect your taxes, talk to a professional tax preparer. These experts can give you the guidance you need to avoid any unwarranted tax consequences.

Article Sources

All articles are reviewed and updated by SmartAsset’s fact-checkers for accuracy. Visit our Editorial Policy for more details on our overall journalistic standards.

Internal Revenue Service. Estate Tax Returns Filed for Wealthy Decedents, Filing Years 2013–2022 (Publication 5332, Rev. 10‑2024). U.S. Department of the Treasury, Oct. 2024. IRS, www.irs.gov/pub/irs‑pdf/p5332.pdf.