Each year, the federal tax exemption amount increases, decreases or remains the same due to inflation. Estate taxes are for all types of taxable incomes from a few thousand dollars to a few million. There are new details about 2022 estate tax exemptions that should be included in your estate plan in Michigan.
New 2022 tax exemption
An estate tax exemption is the monetary value of a person’s estate that is not subject to taxation by the federal government. In 2022, the amount of estate tax exemption is $12.06 million for single individuals and $24.12 million for married couples at the national level, and states may impose an additional tax.
Estate tax requirements
Creating an estate plan includes making provisions for federal estate taxes; however, there is no estate tax in Michigan. You only have to pay federal estate taxes for an estate in excess of $12.06 million. If the total value exceeds the exemption, you have to pay taxes for the excess.
One myth is that the average rate of a federal estate tax for taxable income is 40%. The tax rate increases as the taxable amount increases. The maximum rate is 40% for estates that exceed millions of dollars.
In 2021, the Build Back Better Act was passed to include an additional 5% surtax for millionaires and billionaires. In 2020, the federal estate tax produced $9.3 billion for the government.
Understanding estate tax laws
Every year, the federal laws for estate tax exemptions change. It’s important to understand the basics of tax requirements for earning an income, donating gifts, owning property or transferring your estate in a will or trust.