Does Ohio Collect an Estate "Death" Tax?

Ohio Estate Tax Used to Mean a Freestanding State Tax

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NOTE: State laws change frequently, and the following information may not reflect recent changes in the laws. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not to be relied on as tax or legal advice and is not a substitute for tax or legal advice.

While Ohio is not known to be one of the most tax-friendly states for retirees, Ohio is one of the majority of states that currently do not collect an estate tax at the state level.

While each and every state collected a state estate tax prior to January 1, 2005 in the form of a "pick up tax," Ohio began collecting its own freestanding state estate tax back in 1968 in addition to collecting a pick up tax.

What is the Pick Up Tax?

The "pick up tax" was an estate tax that was collected at the state level that was based on the state estate tax credit that the IRS used to allow on the federal estate tax return, IRS Form 706, prior to January 1, 2005. Each state had different tax laws with regard to the pick up tax, so the amount that a state would collect varied based on that state's own estate tax laws. In essence, however, the overall estate tax bill was not increased or decreased due to the pick up tax. Instead, the total estate tax bill was apportioned between the IRS and state taxing authority.

So what does this mean in plain English? It means that a portion of the federal estate tax was actually taken away from the IRS and instead paid to the decedent's state taxing authority.

As a result, prior to January 1, 2005, if the estate of a deceased Ohio resident owed federal estate taxes, then the Ohio Department of Taxation collected the pick up tax from the deceased Ohio resident's estate in addition to the freestanding Ohio estate tax.

What is the Current Status of the Ohio Estate Tax?

Effective January 1, 2005, the pick up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA").

In response to these changes in federal law that phased out the pick up tax, some states that used to collect a pick up tax chose to enact laws that would allow the state to still collect a state estate tax. This is referred to as "decoupling" from federal estate taxes since the states that enacted a state estate tax no longer based their state estate tax laws on federal estate tax laws.

The majority of states did absolutely nothing and therefore no longer collect a state estate tax. But, as mentioned above, Ohio began collecting a freestanding state estate tax in 1968 that was not tied to the federal estate tax laws, and so Ohio continued to collect its freestanding estate tax from 2005 until it was officially repealed effective January 1, 2013. For information about Ohio's freestanding state estate tax, refer to Overview of Ohio Estate Tax Laws for 2012 and Prior Years.

Does Ohio Collect a State Inheritance Tax?

Does Ohio currently collect a state inheritance tax, which is a tax assessed against the share received by each individual beneficiary of an estate as opposed to an estate tax, which is assessed against the entire estate? The answer to this question is No, Ohio does not currently collect a state inheritance tax.