The Internal Revenue Service of the US government collects transfer taxes as well apart from income tax, payroll taxes and excise duties. The transfer tax contributes as much as 1.5 percent to the annual revenues of the federal government. The transfer tax consists of estate tax, gift tax and the generation-skipping transfer tax.
There are have been some controversies related to the imposition of these taxes which led to them being called as ‘death taxes’.
The gift tax is a tax imposed on the transfer of wealth from one person to another. This tax is imposed on the transfer during the life of the transferor. After the demise of the transferor, if the possessions or wealth are transferred, the estate tax comes into play. Apart from the gift and estate taxes, the GSTT is another tax which is levied upon transfers.
As the name suggests, this transfer tax is imposed on transfers from one generation to another with a gap of one complete generation between them. In simple words, if some wealth is transferred from a grandfather to his grandson, the generation-skipping transfer tax is imposed. In general, transfer taxes are either to be paid by the transferor or are to be deducted from their estate.
The tax rates for gift and estate taxes have been defined between 18 percent and 50 percent for gifts that are worth more than $12,000 or estates valuing more than $2.5 million. These rates have been set according to the Unified Transfer tax Rate Schedule. Whereas, the generation-skipping transfer tax is applied at a flat 50 percent rate. There are certain exemptions granted to transferors which can be used as tax credits so that they would end up paying lesser amount in transfer taxes.