The federal estate tax, which forces individuals who inherit family businesses to pay high taxes on the assets, is set to expire in 2010 for one year and then return at its highest rate, unless a fix is passed by Congress before next year. For example, under the estate tax, also known as the “death tax,” when the owner of a construction company dies, the value of the company is added to the owner’s estate and is taxed after exemptions.
Beginning in 2001, the death tax was gradually phased out as part of a package of tax relief measures. Because of the relief measures, under current law, the estate tax has a top rate of 45 percent and an exemption of $3.5 million per person. Once it is reinstated in 2011, it will return to its highest taxable rate of 55 percent with a $1 million exemption.
To address the problem, the U.S. House of Representatives is considering a one-year extension or a permanent estate tax fix, both of which would retain the current 2009 estate tax level. In addition, The Estate Tax Relief Act of 2009 (H.R. 3905), which was introduced in the House in October, would gradually phase in a $5 million exemption and 35 percent top rate over 10 years.
The House of Representatives has not announced which fix will be considered and it is unlikely that the U.S. Senate will address the issue until early next year. Because the current law will allow the estate tax will to reappear at its highest taxable rate in 2011, ABC continues to advocate for full repeal.
For more information, contact Ashley Fingarson at ABC,
fingarson@abc.org.