- Days left

Rich New Yorkers Face a Nasty Estate Tax Surprise

×
New York City. Park Avenue at dusk.
Patrick Batchelder/Alamy
By Robert Frank

If you're a New York multimillionaire, you now have another incentive to stay alive.

A change this month in New York's estate tax, which was billed as tax relief for the wealthy, contains a hidden wrinkle that could leave some multimillionaires with a much bigger surprise tax upon their death. Certain estates could even wind up with a tax rate of 164 percent on portions of their estates, according to one tax expert.

The changes were intended to ease the tax bill for wealthy New Yorkers and prevent them from fleeing to lower-tax states. A report from the Tax Foundation found that New York had the highest tax burden in the country as a percentage of state income. It found that New Yorkers spent 12.6 percent of their per capita income in 2011 on state and local taxes.

"It's nonsensical," said Kevin Matz, an accountant and attorney in White Plains, N.Y.
"The governor said this is about making New York a better climate for the wealthy. It's had the opposite effect."

On its face, the new law seems like tax relief. Under the previous law, New Yorkers paid estate taxes of 3.06 percent to 16 percent on the value of estates over $1 million. The new law raises that exclusion to $2.062 million this year and gradually increases it to more than $5 million by 2017.

But because the law also phases out certain credits related to federal taxes, people who have estates valued just above the $2 million threshold could get massive estate tax bills. An analysis by U.S. Trust found that a New York resident who dies today with a taxable estate of $2,165,625 could have to pay an estate tax of over $112,050. That represents a tax of over 100 percent on the value of the estate over $2,062,000.

It gets worse in a few years. Matz said that assuming that the exclusion rises to $5,250,000, a New Yorker with a taxable estate of $5,512,500 would have to pay an estate tax of $430,050. That's a marginal tax rate of 164 percent on the value of the estate above the exclusion.

"It's a bait and switch," Matz said.

The solution, he said, is to not phase out the tax credits. Or, the state could also allow them to phase out over a much longer period of time.

The New York State Society of CPAs and other groups have sent letters to New York lawmakers in hopes of getting a quick fix. So far, there has been little response.

A spokesman for the New York State Division of the Budget said that while the marginal rates may have changed, "No one's taxes have gone up. The dollar amount they pay does not increase."

He added that the tax change has insured that by the time it's fully implemented in 2017, 90 percent of New York's estates will no longer be taxed.

Matz, however, said the issue is not just a problem for the so-called rich. When you add up the value of property, pension plans, 401(k) plans and other assets, a New Yorker with just over $2 million in New York "is not exactly super rich. In a state with a high cost of living, that's not that unusual."


More from CNBC



Increase your money and finance knowledge from home

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

TurboTax Articles

What is Form 1095-B: Health Coverage

Form 1095-B is a health insurance tax form which reports the type of coverage you have, dependents covered by your insurance policy, and the period of coverage for the prior year. This form is used to verify on your tax return that you and your dependents have at least minimum qualifying health insurance coverage. If you had a break in health care coverage for the tax year, you may have to pay an individual shared responsibility payment, also known as a tax penalty.

What is Form 1095-A: Health Insurance Marketplace Statement

If you bought health insurance through one of the Health Care Exchanges, also known as Marketplaces, you will receive a Form 1095-A which provides information about your insurance policy, your premiums (the cost you pay for insurance) and the people in your household covered by the policy.

What Are the Tax Penalties for Smokers?

This requirement for minimum essential coverage (MEC) under the Affordable Care Act applies to smokers and nonsmokers alike. If you're not covered by an employer's health plan and are a smoker, you can go to the health care marketplace to find MEC. If you're still unable to comply, you may have a penalty applied.

Tax Planning for Beginners

Your tax refund is based on how much tax you pay in excess of the tax you owe. Basic tax planning strategies aimed at reducing the amount of your taxable income may increase the gap and thus your refund. In some cases, these strategies benefit you in other ways, offsetting future costs for health care or providing for retirement. Though some aspects of tax law can be complicated, even a beginner can focus on taxable income reduction.

Affordable Care Act (Obamacare) Survival Guide For ALEs

A key feature of the Affordable Care Act (also known as Obamacare) is the way in which responsibility for affordable health care coverage is shared between stakeholders. Companies that employ 50 or more people may be considered "applicable large employers" or ALEs under the Affordable Care Act. ALEs have specific provisions when it comes to providing health insurance, and these provisions are being phased in from larger to smaller companies over time. The Internal Revenue Service (IRS) notes that less than 5% of employers are considered ALEs.

Add a Comment

*0 / 3000 Character Maximum

373 Comments

Filter by:
robert.jonesburg

If they just got Life Insurance it wouldn't be an issue. You can get a policy from a place like Life Ant or gnworth for about $25 a month. Why worry about the tax if insurance can cover it. Problem solved geniuses. If you are rich enough to have an estate tax problem you should be smart enough to have a solution as well.

April 13 2014 at 7:58 PM Report abuse rate up rate down Reply
slackwarerobert

they must have won the lottery. the most stupid person would know that if you don't live in ny, you don't have to pay the death taxes there. Even IF you die there.

April 10 2014 at 10:22 AM Report abuse rate up rate down Reply
STEWART

It's also called ACCRUED LIABILITIES... The "billionaires" Balance Sheet of Assets always leave off the Accrued Liabilities. Net worth is more like 10% of the total.. and they can only wear one shirt at a time... !!!... Sooooo... they COULD pay their secretaries more !

April 10 2014 at 8:05 AM Report abuse rate up rate down Reply
jcajunque

Oh boohoo. A drop in the pan for these folk. And I'm sure that with the right tax attorney and estate appraiser, it won't be near what they should be paying.

April 10 2014 at 1:07 AM Report abuse -2 rate up rate down Reply
1 reply to jcajunque's comment
slackwarerobert

ny should at least give them the OPTION of trying to take it with them.

April 10 2014 at 10:23 AM Report abuse rate up rate down Reply
crimeslawyer

The 1% rule. In your face, liberal losers.

April 10 2014 at 12:56 AM Report abuse rate up rate down Reply
jabaileydc

Although the 1% think that, while alive they walk on water, it's good to have them now realize that they can't take it with them!

April 10 2014 at 12:44 AM Report abuse rate up rate down Reply
pmed7777

democrats know the bait and switch game better than ANYBODY........they'll rob you while you ARE watching

April 09 2014 at 11:55 PM Report abuse +5 rate up rate down Reply
legnica2007

goverment is vampire!!!

April 09 2014 at 10:58 PM Report abuse +4 rate up rate down Reply
ptdolphins2

And they can't figure it out why the rich are LEAVING THE CITY/STATE in groves. This is really, really BULLSHIT ! !

No wonder the taxes in New York IS EXPENSIVE - NYC is even worst ! ! POLITICIAL JUST DON'TGIVE A CRAP except when it's time for campaign fund raising.

April 09 2014 at 10:52 PM Report abuse +6 rate up rate down Reply
bill

I just do not understand the death tax to start with. If I have worked my whole life and paid my taxes on what I have earned then what right does the government have to take ANY part of what is left that I want to pass on to my children.

April 09 2014 at 10:49 PM Report abuse +10 rate up rate down Reply
1 reply to bill's comment
kazz23

agreed

April 09 2014 at 11:08 PM Report abuse +5 rate up rate down Reply