The Other Estate Tax Payers: Non-Resident Aliens in the U.S.

September 22, 2006

The latest edition of the IRS’s Statistics of Income Bulletin reminds us of a little-known fact about the federal estate tax: it’s paid by non-resident aliens living in the U.S., too.

While the 2001 Bush tax cut raised the estate tax filing threshold to $1 million for U.S. residents, it left it at only $60,000 for non-resident aliens who own U.S. property. As a result, the estate tax raised roughly $55 million from 734 foreign taxpayers in 2005.

While many countries have tax treaties with the U.S. that help their citizens cut their U.S. estate taxes—such as Canada, Germany and Japan—some countries don’t, leading to much larger estate tax penalties. In 2005, foreigners from “treaty” countries filed 567 estate tax returns, and paid an average tax of $50,455. In contrast, foreigners from “non-treaty” countries filed just 167 returns, but paid a much larger tax bill of $157,783 per return.

From the SOI Bulletin article:

The estate tax, one part of the Federal transfer tax system, is incurred on transfers of property at death. This tax applies to the estates of U.S. citizens, resident aliens, and nonresident aliens who die owning property in the United States. In Filing Years 2003, 2004, and 2005, the majority of all estate tax returns filed were for the estates of decedents who died between 2002 and 2004. For these years, the estate tax for nonresident aliens was incurred by estates with $60,000 or more in U.S. gross assets. In contrast, the filing threshold for U.S. citizen and resident alien estates was $1.0 million for 2002 and 2003 and $1.5 million for 2004, a result of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) passed by Congress in 2001.

Here’s a table of estate tax returns from only the “treaty” countries. Our Canadian neighbors to the north bore most of the burden of the estate tax among non-residents:

(Click to enlarge)

Read the full piece here. Download the related Excel tables here.

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