Though the federal estate tax took a break in 2010, the tax will once again be levied on American’s heads in 2011. The tax has undergone a variety of different changes since 2001, when Congress voted to begin changing the rate at which the tax is applied. Furthermore, the income level that triggers an exemption from estate taxes has also fluctuated in the past decade. The reinstatement of the estate tax comes with a vengeance, as the exemption level will fall to the lowest point its seen in years and the tax rate will make a major hike.
Congress began making changes to the estate tax earlier this decade, which culminated in a one year repeal of the tax in 2010. In practice, this repeal allowed deceased individuals to pay nothing in tax on their estates in 2010. Prior to 2010, the tax rate was fixed at 45%, with individual exemption at $3.5 million. When the tax returns on January 1st, it will be applied at a rate of 55%, with the exemption set at $1 million.
While a higher exemption figure means only wealthy individuals are directly affected by the changes in the tax law, the lower exemption of $1 million dollars is expected to greatly effect average American families. As the estate tax counts all possessions as taxable, including real estate property and retirement savings, it is much easier for individuals from the middle-class to cross the $1 million threshold, in turn making themselves liable for paying the hefty estate tax. Once the estate tax increase takes place in January, the rate hike will officially become the largest ever in the history of the nation.
Several politicians had proposed making changes to the estate tax law, with the Obama administration supporting the reenactment of the 2009 terms. Though the Obama recommendations were approved by the House, Senate Republicans blocked the measure in the Senate earlier this year. Unfortunately, as 2010 was an election year, many politicians seemed unwilling to propose new measures that could have negatively impacted their election campaigns.
Whereas wealthy families have used several different methods to evade taxation in the past, many middle class families will be forced to pay the new taxes. For example, many wealthy individuals have traditionally gifted large amounts of money to members of their kin, or made significant charitable donations. In specific instances, both gifts remain free from taxation. The average American does not have the luxury of avoiding such taxation, however, as much of their wealth is likely tied up in their home’s value. Individuals living in areas with high property values are particularly at risk.
As the new estate tax law comes into place, it’s anyone’s guess as to how long the law will remain in place. Opponents remain hopeful that the legislative branches will work out a compromise to ease the strain on ordinary Americans. Unfortunately, for the moment, the high tax hikes remain in place, placing millions of Americans at risk of paying the enormous tax.
Emma Martin writes for Ask Deb, where you can find Macaroni Grill Coupons, Arby’s Coupons and tons of other great deals on your favorite eating and shopping establishments.
