Yes, the federal estate tax is progressive. After a $15 million per-person exclusion in 2026, the taxable portion of an estate runs through 12 graduated brackets that start at 18% and climb to 40% on amounts above $1 million of taxable value.1Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Because the rates apply only to what’s left after the exclusion, and because they apply marginally rather than as a flat percentage, larger taxable estates end up paying a higher average rate than smaller ones. That two-part design — a huge zero-rate zone followed by a rising ladder — is what makes the tax progressive.
How the Graduated Brackets Work
The Internal Revenue Code sets out 12 brackets. The first $10,000 of taxable value is taxed at 18%, the next $10,000 at 20%, the next $20,000 at 22%, and so on through progressively wider tiers until the top bracket takes 40% of every dollar above $1 million.1Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
The word to hold onto is marginal. An estate with $2 million of taxable value doesn’t pay 40% on the whole $2 million. It pays 18% on the first $10,000, 20% on the next slice, and continues up the ladder until the top bracket applies only to the amount between $1 million and $2 million. The lower brackets pull the average down, so the effective rate lands well below 40%. Bigger taxable estates spend more of their value in the top bracket, which is exactly why the average rate rises with size.
One quirk of the schedule: the brackets look like they cover small amounts, starting at $10,000. They’re a holdover from when exclusions were far lower. Today, almost every taxable estate blows past the top threshold, so in practice the 40% bracket is where most of the action sits.
Why the Exclusion Makes the System Steeply Progressive
The basic exclusion amount for 2026 is $15 million per person.2Internal Revenue Service. What’s New – Estate and Gift Tax Think of it as an enormous 0% band that sits below the rate schedule. Anything under $15 million is not taxed at all, and the graduated brackets don’t even come into play.
That figure comes from the One, Big, Beautiful Bill Act, signed into law on July 4, 2025. The law set the basic exclusion at $15 million and eliminated the sunset that had been scheduled to cut the exclusion roughly in half at the end of 2025. Beginning in 2027, the $15 million base amount adjusts annually for inflation.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
The exclusion is what gives the tax its steep progression when measured against total estate value. Because the first $15 million pays nothing, effective rates on the entire estate start near zero and rise slowly as more of the estate spills into the taxed zone.
A Worked Example
A person dies in 2026 with a $16 million estate. Only $1 million is taxable after the exclusion. Run through the brackets, that $1 million produces a tax bill of $345,800. The effective rate on the full $16 million estate is about 2.2%.1Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
Now take a $25 million estate. Ten million dollars sits above the exclusion and runs through the schedule, most of it in the top bracket. The effective rate climbs sharply. Push the estate higher still, and it approaches the 40% ceiling from below. Two estates, same rules, very different average rates. That’s the progression in action.
How Lifetime Gifts Shift the Starting Point
The estate tax and gift tax share one unified credit. The $15 million exclusion isn’t reserved for death — it covers the total of your taxable lifetime gifts plus whatever’s left in your estate at death. Give away $3 million in taxable gifts during your life, and only $12 million of the exclusion remains for your estate.3Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
Not every gift counts. In 2026, you can give up to $19,000 per recipient per year without filing a gift tax return or touching your lifetime credit.4Internal Revenue Service. Gifts and Inheritances Gifts above that annual amount are reported and chip away at the $15 million.
This unification matters for progression. Someone who made $10 million in taxable lifetime gifts enters the rate schedule at a higher effective point than someone who made no gifts, even if the two estates hold identical assets at death. The IRS calculates the tentative tax on the combined total of the taxable estate plus adjusted taxable gifts, then subtracts a credit for taxes already accounted for on those gifts.1Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax The result is that lifetime giving doesn’t escape the progressive structure; it just pulls the calculation forward in time.
Portability Pushes the Progression Even Higher
Between spouses, the exclusion is portable. When the first spouse dies without using their full $15 million, the surviving spouse can claim whatever portion went unused. This deceased spousal unused exclusion effectively lets a married couple shield up to $30 million combined before the brackets touch anything.5Office of the Law Revision Counsel. 26 US Code 2010 – Unified Credit Against Estate Tax
Portability isn’t automatic. The executor of the first spouse’s estate has to file Form 706, the full federal estate tax return, even if that estate is well under $15 million and owes nothing.6Internal Revenue Service. Instructions for Form 706 Skip the filing and the unused exclusion is gone.
Also worth naming, because it interacts with progression: property that passes to a surviving spouse is fully deductible from the gross estate with no cap.7Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse Leave everything to your spouse and the federal estate tax at your death is zero regardless of size. The tax isn’t erased; it’s deferred to the survivor’s estate, where the combined exclusion and portability may still keep it out of the brackets entirely.
State Estate and Inheritance Taxes Don’t Follow Federal Thresholds
The federal tax isn’t the only layer, and it’s a mistake to assume that clearing $15 million federally clears you at the state level. Twelve states and the District of Columbia impose their own estate taxes, and five states levy inheritance taxes, which are paid by the person receiving assets rather than by the estate. Maryland imposes both.
State exclusions tend to run far below the federal $15 million, some starting as low as $1 million. Top state rates generally range from 12% to 16%, and Hawaii taxes estates over $10 million at rates up to 20%. Most states use graduated brackets that mirror the federal progressive design, though a few apply a flat rate. State inheritance taxes add a second dimension of progression: the rate depends on how closely the recipient is related to the decedent, with spouses typically exempt and distant heirs paying more than close family. If your state imposes one of these taxes, its thresholds and deductions apply independently of the federal rules.