Credit Estate Tax

Some states use the credit estate tax as the sole death tax. These "credit states" ask that they be sent a copy of form 706. They then take the maximum allowable federal credit as state death taxes due.

However, states may also levy the credit estate tax in addition to the Inheritance or State Estate Taxes. This happens when the state death tax is less than the maximum federal credit. Note that it is possible to pay more than the federal estate taxes calculated. This happens when the state death taxes are greater than the maximum allowable federal credit.

Examples:

State Death Taxes are Less than the Federal Credit – Your federal estate taxes equal $100,000. You owe your state $6,000 in death taxes, but the maximum allowable federal credit for your state is $7,000. The state death tax is less than the federal credit. In this case, you would send $7,000 to the state and $93,000 to the federal government.
State Death Taxes are More than the Federal Credit – It is possible that you could owe more than the total $100,000 in federal estate taxes. If your state death taxes equal $10,000 and the maximum federal credit is $7,000, you would owe a total of $103,000 in taxes. You would still send only $93,000 to the federal government, but you would have to send $10,000 to the state government.