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So anything up to the exemption threshold isn't subject to federal estate tax. That means if someone's estate was worth $13.06 million in 2022, for example, the estate tax would apply to only the $1 million that's over the $12.06 million exemption threshold.
You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.
The fiduciary of a domestic decedent's estate, trust, or bankruptcy estate files Form 1041 to report: The income, deductions, gains, losses, etc. of the estate or trust. The income that is either accumulated or held for future distribution or distributed currently to the beneficiaries.
Ing to the Internal Revenue Service (IRS), federal estate tax returns are only required for estates with values exceeding $12.06 million in 2022 (rising to $12.92 million in 2023).
Any income earned after the person's death goes to their estate instead. For instance, if someone passes away before their last payday, the money from their final paycheck will be transferred to their estate. This is income that needs to be reported on Form 1041.