How does inheritance tax work in North Carolina?


Quick Answer

As of 2015, North Carolina does not collect an inheritance tax or an estate tax, explains Julie Garber for About.com. Prior to Jan. 1, 2005, North Carolina imposed a pick-up tax on estates, meaning the state collected tax that was equal to a portion of the federal estate tax.

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Full Answer

The North Carolina pick-up tax was a state estate tax collected based on the state estate tax credit allowed by the IRS on the estate tax return Form 706 on the federal tax level, explains Garber. This meant a portion of the federal estate tax was taken away from the federal government and paid to the state taxing authority.

The pick-up tax was phased out after Jan. 1, 2005, under the provisions of the Economic Growth and Tax Relief Reconciliation Act. Most states did nothing to make up for the lost pick-up tax, but North Carolina enacted a new state estate tax law. That law was phased out in 2010 due to the repeal of the federal estate tax, states Garber. In 2011, the tax reappeared with a $5 million exemption, and in 2012, the law allowed for a $5.12 million exemption. North Carolina estate tax was repealed permanently on Jan. 1, 2013.

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