The Maryland estate tax is equal to the maximum allowable credit for state death taxes under §2011 of the Internal Revenue Code without reduction by any Act of Congress enacted on or after January 1, 2001, minus the inheritance tax paid to the Office of the Register of Wills.
The federal Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA of 2001) began phasing out the federal estate tax, increasing the filing exemption amounts, beginning with estates of decedents dying on January 1, 2002. The full repeal of the federal estate tax was effective in 2010 and the Act provides that the credit for state death taxes allowed under § 2011 of the Internal Revenue Code will be reduced by 25% each year, starting in 2002, until completely eliminated by 2005. Maryland's estate tax is based on this credit.
In response to the federal act, Maryland passed the Budget Reconciliation and Financing Act of 2002, effective for estates of decedents dying on or after January 1, 2002. These provisions "decoupled" Maryland from the phase-out of the federal credit for state death taxes. The Maryland estate tax was then determined by using the allowable federal credit for state death taxes without reduction by any Act of Congress enacted on or after January 1, 2001. The filing requirement remained the same: a Maryland estate tax return was required to be filed only when a federal return was required for a Maryland decedent or an estate that included Maryland property.
Subsequent passage of Maryland's Budget Reconciliation and Financing Act of 2004 further "decoupled" Maryland from the federal tax by freezing the unified credit at the amount that corresponds to an applicable exclusion amount of $1,000,000 for purposes of determining the Maryland estate tax. This means that for decedents dying after December 31, 2001 and before January 1, 2015, a Maryland estate tax return is required for estates whose gross estate plus adjusted taxable gifts is valued at $1,000,000 or more.
Legislation enacted during the 2014 legislative session gradually conforms the Maryland estate tax exemption amount to the value of the unified credit under the federal estate tax, thereby increasing the amount that can be excluded for Maryland estate tax purposes and ultimately “recoupling” the Maryland and federal exemption amounts. The increase in the amount that can be excluded for Maryland estate tax purposes is phased over five years and is equal to (1) $1.5 million for a decedent dying in calendar year 2015; (2) $2.0 million for a decedent dying in calendar year 2016; (3) $3.0 million for a decedent dying in calendar year 2017; (4) $4.0 million for a decedent dying in calendar year 2018; and (5) the amount excluded under the federal estate tax for a decedent dying on or after January 1, 2019. Check the Internal Revenue Service website for information on the federal estate tax exemption amount.
If the inheritance tax paid is equal to or exceeds the Maryland estate tax, no Maryland estate tax is due. However, an estate tax return is still required and estate tax is owed and due until the inheritance tax is actually paid.
The credit for state death taxes may be apportioned for estates that include certain property located outside of the State of Maryland. The instructions for determining the portion of the credit that is due to Maryland are located on Schedule A of the Maryland estate tax return, Form MET-1.
Use the MET-1 form appropriate for the date of the decedent's death.
For more information, see the Estate Tax Filing Information link below.