Six states currently have inheritance tax, and it applies only to what you inherit, not to your total estate
Inheritance tax is a tax on money or property you receive from someone who has died. It is different from estate tax, which taxes the total value of what the dead person left behind. Only six states collect inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax rate and what is taxed varies by state and by your relationship to the person who died.
If you live in one of these six states and inherit money or property, you may owe tax on it. The amount depends on how much you inherited, what you inherited, and how closely related you were to the person. Spouses and children often pay lower rates or nothing at all. More distant relatives and unrelated people pay higher rates.
Key Takeaways
- Only Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance tax; the other 44 states do not.
- Inheritance tax is paid by the person who receives the money or property, not by the estate itself.
- Spouses are usually exempt from inheritance tax entirely, and children often pay reduced rates or nothing.
- The tax rate depends on your relationship to the dead person and the value of what you inherited, and varies significantly between the six states that have it.
How inheritance tax differs from estate tax
Inheritance tax and estate tax are often confused because they both involve death and money, but they work differently. Estate tax is paid by the estate itself — the total pool of money and property left behind — before anything is distributed to heirs. Inheritance tax is paid by each individual person who receives something, based on what they personally inherited.
The federal government does not have an inheritance tax, only an estate tax that applies to very large estates. Some states have both an estate tax and an inheritance tax. New Jersey, for example, has both. Others have only one or the other. Most states have neither.
State-by-state inheritance tax rates and exemptions
Each of the six states that has inheritance tax sets its own rules about who pays, how much, and what is exempt. The relationship between you and the dead person matters most.
| State | Tax Rate Range | Spouse Exempt? | Children Exempt? | Other Notes |
|---|---|---|---|---|
| Iowa | 0% to 15% | Yes | Yes | Parents and grandparents also exempt. Tax applies to siblings, aunts, uncles, and unrelated people. |
| Kentucky | 0% to 16% | Yes | Yes | Parents, grandparents, and siblings also exempt. Unrelated people pay the highest rate. |
| Maryland | 0% to 10% | Yes | Yes | Parents and grandparents also exempt. Only applies to estates over $40,000. |
| Nebraska | 0% to 18% | Yes | Yes | Parents, grandparents, and siblings also exempt. Highest rates apply to distant relatives and unrelated people. |
| New Jersey | 0% to 16% | Yes | Yes | Parents, grandparents, and siblings also exempt. Applies to estates over $25,000. |
| Pennsylvania | 0% to 15% | Yes | Yes | Parents and grandparents also exempt. Siblings pay 12%, unrelated people pay 15%. |
In all six states, spouses are completely exempt — you owe no inheritance tax on what you inherit from your spouse. Children are also exempt in all six states. The tax burden falls on more distant relatives and unrelated people, who pay the highest rates.
What types of property are subject to inheritance tax
Inheritance tax usually applies to money in bank accounts, investment accounts, real estate, vehicles, and personal property like jewelry or art. However, some assets are exempt in most or all states. Life insurance proceeds paid directly to a named beneficiary are usually not taxed. Retirement accounts like IRAs and 401(k)s that pass to a named beneficiary are often exempt. Property held in a trust may be treated differently depending on the state and how the trust is structured.
The executor of the estate — the person handling the dead person's affairs — is responsible for reporting what was inherited and calculating the tax owed. You will receive a notice from the state if you owe inheritance tax. The deadline to pay varies by state but is typically several months after the death.
Who pays the tax and when
The person who inherits the money or property is responsible for paying the inheritance tax, not the estate. However, the executor often pays it on behalf of the heirs using money from the estate before distributing what is left. If the executor does not pay, the state can pursue the heir directly.
The deadline to file and pay inheritance tax varies by state. Most states give you between three and nine months from the date of death to report and pay. If you miss the deadline, you may owe penalties and interest. Some states allow extensions if you request them in writing before the deadline passes.
How to learn about you owe inheritance tax
If someone dies and you inherit money or property, the first step is to find out which state they lived in when they died. If they lived in one of the six inheritance tax states, you may owe tax. The executor of the estate should notify you and help you understand what you owe.
You can also contact the tax department in the state where the dead person lived. Each state has a website with forms and instructions for reporting inherited property. The forms usually ask for the dead person's name, the date of death, a list of what was inherited, and your relationship to the dead person. You will need to file a return even if you think you are exempt, because the state needs to verify your exemption.
Frequently Asked Questions
Do I owe inheritance tax if I inherit from someone who lived in a different state than me?
Inheritance tax is based on where the dead person lived, not where you live. If they lived in one of the six inheritance tax states, you may owe tax even if you live elsewhere. If they lived in a state without inheritance tax, you owe nothing to that state, regardless of where you live.
What if I inherit real estate in a state with inheritance tax?
Real estate is subject to inheritance tax in the state where the property is located. If you inherit a house in Pennsylvania, you may owe Pennsylvania inheritance tax even if you live in another state. The executor or the title company handling the transfer will usually notify you of the tax owed.
Can I reduce what I owe in inheritance tax?
If you are exempt — as a spouse, child, or other protected relative — you owe nothing. If you are not exempt, the tax is based on the value of what you inherited and your relationship to the dead person. Some states allow deductions for funeral expenses or debts owed by the estate, which can reduce the taxable amount.
What happens if I don't pay inheritance tax?
The state can place a lien on property you inherited, pursue you in court, or report the debt to credit agencies. Penalties and interest accrue over time. If the executor did not pay, the state may go after them first, but you can still be held responsible as the heir.
Is there a federal inheritance tax?
No. The federal government does not have an inheritance tax. It has an estate tax that applies only to very large estates — currently those worth more than $13 million or so, though this threshold changes yearly. Most people never owe federal estate tax. Only the six states listed above have inheritance tax.