More Americans could fall into the estate tax if Congress does not take action before the current rates are allowed to expire at year's end. NY1's Money Matters reporter Tara Lynn Wagner filed the following report.
The end of the year marks the end of the current estate tax, and unless lawmakers make a move, the beginning of a massive expansion. Under the law that's set to expire, the individual exemption is $5,120,000 or over $10 million for a married couple. Anything above and beyond that is subject to a top tax rate of 35 percent.
"That will change at the end of the year. If it does change, at the beginning of next year, it will go to a $1 million exemption per person and a top estate tax rate at 55 percent," says Joseph Falanga, the managing director of UHY Advisors.
One may think a million dollars is a lot of money, but CPA Alan Kahn says one would be surprised how many people, perhaps yourself included, could reach that mark.
"You've worked all of your life, you have a home, you have a retirement account, you have a pension account, that million dollars can add up very, very quickly," says Kahn. "So many people will fall into that estate taxable situation if Congress does not take action."
In fact, according to the Tax Policy Center, if Congress lets the law expire in 2013, the estate tax would hit more than 10 times as many estates as it did in 2012.
This same situation was avoided in 2010 when lawmakers reached an 11th-hour agreement. Options this time around include repealing the tax altogether or lowering the exemption and raising the rate but not to the point where so many people would be caught in the net.
"Three-and-a-half million per person at a 45-percent tax rate in excess of that really takes care of a majority of Americans," says Kahn.
In the meantime, experts say now is a good time to revisit one's estate plan and perhaps reduce a taxable estate by gifting money. And while no one has a crystal ball to tell them what lawmakers will ultimately decide, experts are optimistic something will be done before the New Year's ball drops.
"I do believe Congress will do a patch, however, nothing is guaranteed," says Kahn.