1. Money
Julie Garber

State Estate Tax Update - What is the Future of the Pick Up Tax?

By September 10, 2012

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While updating my State Estate Tax and Exemption Chart for the 2013 tax year, it dawned on me - I just may have to add a boat load of states to the list of states that collect state estate taxes beginning on January 1, 2013. Why? Because it's very possible that the pick up tax will come back on that date. And what is the pick up tax? It's a death tax that many states, including California and Florida, used to collect that was equal to a portion of the federal estate tax bill. But alas, a majority of states collected the pick up tax until it was completely phased out on January 1, 2005. After that a handful of states enacted standalone state death tax laws, but the majority of states did nothing, and so today most states don't collect any type of a state death tax.

Now, on the verge of 2013 (can you believe it's less than four months away?), the pick up tax is set to return unless Congress and President Obama take action during the lame-duck session that will eventually get underway after the presidential election. Many believe that our fine legislators will be able to get their act together before the end of the year and extend all of the Bush-era tax cuts as well as the current 2012 estate tax laws (= $5.12 million estate tax exemption, 35% estate tax rate, no pick up tax). But I have a sinking suspicion that it won't be as easy or as predictable as the majority think, particularly when it comes to the estate tax. Why? Because our fine legislators had the opportunity during the George W. Bush presidency to permanently repeal the estate tax, and yet they didn't. Why not? Let's face it, the federal estate tax is a political issue for a very small number of wealthy taxpayers, and Congress loves to take their money and promise repeal, but if repeal really did happen, then the game would be over and the lobbying money would stay in the pockets of the wealthy, wouldn't it?

Once upon a time I believed that the federal estate tax would be permanently repealed, but not anymore. And so yes, there is a distinct possibility that I will have to add a boatload of states to my State Estate Tax and Exemption Chart for 2013 thanks to the return of the pick up tax.

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