The federal estate tax is a tax paid after a person’s death on the value of the person’s property.
A large amount of an estate is exempt from the federal estate tax. In 2021, the exempt amount is $11.7 million. The amount is indexed for inflation each year. So, only the wealthiest estates have to pay the tax. The maximum estate tax rate in 2021 is 40%.
Some states also impose estate or inheritance taxes, or both. The exempt amounts vary among those states as do the tax rates. A state estate or inheritance tax is imposed on the estates of people who were residents of the estate and on real estate located in the state.
Tax Identification Number
After a person passes away and the estate begins to be administered, the personal representative of the estate (also known as the executor or administrator) must obtain a federal tax ID number for the estate. The estate must have its own tax ID number. It can’t use the deceased’s Social Security number or some other number.
As stated by the IRS, “The decedent and their estate are separate taxable entities. Before filing Form 1041 [the estate tax return], you will need to obtain a tax ID number for the estate.” The tax ID number for the estate is called an “employer identification number” (EIN).
A business also must have an EIN to file its income tax return and employment tax returns. If the decedent owned a business, the estate can’t use the business’s EIN, even if the business was operated through the estate.
The executor of the estate may apply for the EIN after the probate court officially names the executor. The easiest way to apply for an EIN is online using the IRS’s EIN Assistant. The site is here. When applying, the executor must have the decedent’s social security number.
The executor will receive the ID number via email immediately after completing the application process. .
An alternative way to obtain an EIN is to download and fill out Form SS-4 from the IRS web site. You also can call the IRS and ask to have a copy of the form mailed to you. Then, submit the form by mail or fax. It will take longer to receive the number, because it will be mailed to the executor.
Income Tax Returns
The executor of the estate is also responsible for filing the last income tax return of the deceased by using the individual’s social security number. If the estate earns income and has assets worth more than $11.58 million, the executor will have to file an estate income tax return and pay the income taxes.
Acquiring an estate tax ID is a relatively simple process for the representative of the estate. This can be as easy as filling out a form online and receiving the EIN by email.
Important assistance for this summary of “How to Get an Estate Tax ID” goes to Bob Carlson, editor of the Retirement Watch financial advisory service and chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets.
Jaxon Kim is an editorial intern with Eagle Financial Publications.