Estate tax

Estate Tax Revenue Jumps for 2021

Something surprising happened in 2021: Estate tax revenue increased. Though the estate tax exemption has never been higher, the amount collected almost doubled from 2020 to 2021, from $9.3 billion to $18.4 billion, recent IRS data indicates.

Experts suspect it’s the combination of pandemic death rates and market gains in stocks and real estate. Some people simply got caught dying with too much money. Although the $18.4 billion they paid might sound like a lot, it’s barely a blip in the $4 trillion+ tax revenue the U.S. government collects each year.

Still, the IRS estate tax data, is fun to delve into. It must be noted, however, that it is imprecise and doesn’t really reflect taxes for only 2021. The reason is executors have at least 15 months to file an estate tax return after a person dies. So returns filed in 2021 could include deaths in 2021, 2020 or late 2019. Or even earlier. Returns can of course be filed late, and there’s more time to if th return is for  “portability” purposes. 

The Estate Tax Exemption

The exemption is the cornerstone of the estate and gift tax, and it is adjusted for inflation each year. Here’s what it was for the most likely 2021 filers:

  • 2019: $11.4 million per person.
  • 2020: $11.58 million.
  • 2021: $11.7 million
  • Double for married people.

In case you were wondering, the exemption for 2022 is $12.06 million. And the IRS announced a big jump to $12.92 million for 2023, thanks to the higher inflation everyone is complaining about. The exemption will continue to climb with inflation until 2026, when, if no action is taken, it will revert to a base of $5 million (adjusted for inflation at that time).

To calculate estate tax, you add up fair market value of everything a decedent owns or has certain interests in at death. That’s the gross estate. The next step is to subtract deductions (such as the estate tax exemption), add back lifetime taxable gifts, and then compute the tax, which can be as high as 40% at the top levels.

Death & Taxes-2019 to 2020

About 3.39 million people died in 2020, up from 2.85 million in 2019—a 19% increase, the largest in 100 years. Deaths stayed elevated in 2021, 3.42 million, so the trend might continue. But only 0.08% of those who died in 2020 were subject to estate tax tax.

Data for their returns show the effects of the pandemic: a significant dip from 2019 to 2020, followed by a rebound in 2021. People didn’t get out much in 2020, including, apparently, to their CPAs. Compare 2019, 2020, and 2021:

2019

  • Number of returns filed: 6,409
  • Gross value: $159.6 billion
  • Number taxable: 2,570 taxable, 48% of returns filed
  • Gross value-taxable estates: $77.2 billion
  • Amount paid: $13.2 billion
  • Charitable deductions: $21.9 billion

2020

  • Number of returns filed: 3,441
  • Gross value: $122.3 billion
  • Number taxable: 1,275, 37% of returns filed
  • Gross value-taxable estates:  $63.5 billion
  • Amount paid: $9.3 billion
  • Charitable deductions: $27.4 billion

2021

  • Number filed: 6,158
  • Gross value: $189.6 billion
  • Number taxable: 2,584 taxable, 52% of returns filed
  • Gross value-taxable estates: $98.3 billion
  • Amount paid: $18.4 billion
  • Charitable deductions: $24.5 billion

In 2021, about 60% of estates valued at over $50 million were taxable, up from 53% in 2020, and 55% in 2019.

The $50 million+ estates paid the most tax across all three years: in 2021, 369 returns with $11.3 billion paid; 2020, 186 returns with $5.6 billion in tax; and 2019, 265 filed and $6.5 billion tax.

Returns filed for which no tax was owed showed a similar pandemic dip in 2020: 2019, 3,838; 2020, 2,166; 2021, 3,574

Other Interesting Tax Tidbits

The 2021 tax data reveals other fascinating facts, including the types of assets that are taxed (or which holders of assets either don’t mind paying tax or didn’t plan to avoid it):

  • Publicly Traded Stock: $29.9 billion
  • Bonds: $11.6 billion
  • Cash:  $8.3 billion
  • Closely Held Stock: $6.1 billion
  • Real Estate:  $6.0 billion
  • Limited Partnerships: $4.8 billion
  • Noncorporate Business Assets:  $4.4 billion
  • Real Estate Partnerships:  $4,4 billion
  • Private Equity and Hedge Funds: $4.0 billion
  • Personal Residence: $2.9 billion
  • Art: $1.7 billion

Also captured: Occupations of the decedents. Here are the top 10 (other than “Other”):

  1. Business and Financial Operations: 2,136 returns, $76 billion net worth
  2. Retired:  764 returns, $18.2 billion net worth
  3. Management: 504 returns, $17.3 billion net worth
  4. Healthcare Practitioners and Technical:  305 returns, $6 billion net worth
  5. Legal: 274 returns, $5.7 billion net worth
  6. Farming, Fishing, and Forestry: 263 returns, $6.6 billion net worth
  7. Sales and Sales-Related: 226 returns, $6.5 billion net worth
  8. Arts, Design, Entertainment, Sports, and Media: 212 returns, $6.5 billion net worth
  9. Education, Training, and Library: 205  returns,  $4.3 billion net worth
  10. Architecture and Engineering:  157 returns, $3.5 billion net worth

 

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