The Tax Foundation recently released a report entitled State Inheritance Taxes: Rates, Economic Implications and the Return of Interstate Competition. It might come as a surprise that New York isn’t ranked the worst in this comparison, but that statement of course needs clarification.
While the exemption amount under the estate tax in New York has been increasing for the past several years to reach a relatively generous $5.125 million, there’s a hitch. Estates that exceed the exemption amount are taxed on the entire value of the estate—not just the value above $5.125 million. Those estates lose the benefit entirely.
An example from the New York State Society of CPA’s explains how the estate tax law could result in a tax rate of 164%. A decedent with a New York taxable estate of $5.5125 or 5% more than the exemption would pay an estate tax of $430,050 on the extra $262,500.
This “tax cliff” discourages businesses in New York from expanding, and small business owners incur expenses in planning and complying with the law. NFIB NY has been advocating for reform of the tax cliff, which also encourages outmigration of population to one of the many states that no longer imposes the death tax. At the federal level, NFIB is part of the Family Business Estate Coalition, which calls for relief from the federal estate tax (top tax rate of 40%) through full and permanent repeal.
View Estate Tax By the Numbers infographic
