Important Change to the Federal Estate Tax

An important change was made to the federal estate tax exemption in July. 

As a refresher, the estate tax is a tax that must be paid by an individual’s estate after their death before the estate assets are distributed to beneficiaries.  The federal government imposes an estate tax, as do a small number of states. 

The good news is Idaho does not impose state estate taxes. Accordingly, Idaho residents typically only have to consider federal estate taxes (and, as discussed below, most people don’t have to worry about federal estate taxes either).

As far as the federal estate tax, the first thing to remember is that an individual can leave an unlimited amount of assets to their spouse estate tax-free. In addition, Congress sets an amount that an individual can leave to other beneficiaries without having any estate tax liability. Though the intricacies of the tax code are a little more complicated, in shorthand, the amount an individual can leave estate tax-free is known as the “estate tax exemption.” 

In 2018, Congress voted to temporarily double the estate tax exemption for individuals dying between 2018 and 2025. Congress’ action resulted in significantly reducing the number of estates subject to the federal estate tax. For example, in 2022, only 0.14% of individuals who died that year owed any estate taxes.  In 2025, the estate tax exemption is $13.99 million per individual. Married couples can combine their individual exemptions, resulting in a total exemption of $27.98 million per couple.  

Congress originally scheduled the 2018 increases to expire in 2026.  However, this July, Congress voted to make the current estate tax exemption permanent.  Beginning in 2026, the estate tax exemption will be $15 million per individual and $30 million for married couples who combine their exemptions. Plus, the exemption amounts are indexed for inflation, which usually means they will increase each year. 

The takeaway is that following the recent changes to the tax code, as Idahoans, most of us don’t have to worry about estate tax liability.