Pennsylvania does have an inheritance tax, and it applies to most people who inherit money or property in the state
Pennsylvania's inheritance tax is a state tax on what you receive when someone dies. Unlike federal estate tax, which applies only to very large estates, Pennsylvania's inheritance tax can affect smaller inheritances. The tax rate depends on your relationship to the person who died — spouses and children under 21 pay nothing, but more distant relatives and unrelated people pay between 4.5% and 15% of what they inherit.
The tax is paid by the person who inherits, not by the estate itself. If you inherit $50,000 from a cousin in Pennsylvania, you may owe inheritance tax on that amount. The executor of the will — the person managing the estate — typically handles filing the tax return and paying what is owed, usually within nine months of the death.
Pennsylvania is one of only six states that still collects an inheritance tax. Most states have moved away from it, so if you are comparing Pennsylvania to other states, this is a real difference in what heirs actually receive.
Key Takeaways
- Spouses and children under 21 pay zero inheritance tax in Pennsylvania, regardless of the amount inherited.
- Children 21 and older, parents, and grandparents pay 4.5% on inheritances; siblings pay 12%; and unrelated people pay 15%.
- The executor files the inheritance tax return within nine months of death, and the tax is due at the same time.
- Pennsylvania allows a $3,500 exemption per person for lineal descendants (children, grandchildren, parents), which reduces the taxable amount.
- Some assets, including life insurance proceeds and retirement accounts with named beneficiaries, are not subject to inheritance tax.
Tax rates by relationship to the deceased
Pennsylvania groups heirs into four categories, each with a different tax rate. Your relationship to the person who died determines which rate applies to your inheritance.
| Relationship to Deceased | Tax Rate |
|---|---|
| Spouse | 0% |
| Child under 21 | 0% |
| Child 21 and older, parent, grandparent | 4.5% |
| Sibling | 12% |
| Unrelated person (friend, in-law, etc.) | 15% |
If you inherit from your spouse, you owe nothing. The same applies if you are under 21 and inherit from a parent or grandparent. Once you turn 21, the rate jumps to 4.5%. A sibling's inheritance costs 12%, and if you inherit from someone unrelated to you — a friend, an in-law, or a business partner — the rate is 15%.
These rates explore to the amount you inherit after certain deductions. Pennsylvania allows a $3,500 exemption per person for lineal descendants (children, grandchildren, and parents). So if you inherit $10,000 from your parent, you subtract $3,500, leaving $6,500 subject to the 4.5% rate, which equals $292.50 in tax.
What assets are and are not taxed
Not everything you inherit is subject to Pennsylvania's inheritance tax. Some assets pass to you outside the estate and are treated differently under state law.
Assets that are taxed include real estate (houses, land), bank accounts, investment accounts, vehicles, and personal property like jewelry or furniture. If these assets are in the deceased's name alone and pass through the will or intestacy law, they are subject to inheritance tax.
Assets that are not taxed include life insurance proceeds paid to a named beneficiary, retirement accounts (IRAs, 401(k)s) with a named beneficiary, payable-on-death bank accounts, transfer-on-death investment accounts, and property held as "joint tenants with rights of survivorship" (a common way spouses hold a house). These assets bypass the estate entirely and go directly to the beneficiary you named.
This distinction matters. If your parent leaves you $100,000 in a will but also has a $100,000 life insurance policy with you as the beneficiary, you owe inheritance tax only on the $100,000 from the will. The life insurance arrives tax-free.
How the tax is filed and paid
The executor of the estate — the person named in the will to manage it — is responsible for filing Pennsylvania's inheritance tax return. This return must be filed with the Pennsylvania Department of Revenue within nine months of the death, and the tax is due at the same time.
The executor typically pays the tax from the estate's assets before distributing money to heirs. If the estate does not have enough cash to cover the tax, the executor may need to sell assets or ask heirs to contribute. In some cases, heirs can arrange to pay the tax directly instead of waiting for the executor to handle it.
If the estate is very small — under $25,000 in some cases — Pennsylvania may allow a simplified process that does not require a full inheritance tax return. The executor should check with the Department of Revenue or a tax professional to see if this applies.
Late payment can result in penalties and interest. If the return is filed late, the penalty is 5% per month, up to 25% of the tax owed. Interest accrues at the state rate, which changes quarterly.
Differences between inheritance tax and estate tax
Pennsylvania has an inheritance tax but no state estate tax. This is an important distinction because the two work differently and affect different people.
An inheritance tax is paid by the person receiving the money or property. Pennsylvania's inheritance tax applies to most inheritances, regardless of size, depending on the heir's relationship to the deceased. You owe it based on what you inherit.
An estate tax is paid by the estate itself before anything is distributed to heirs. It applies only to very large estates — the federal estate tax, for example, applies only to estates over $13.61 million (as of 2024, though this amount changes yearly). Pennsylvania does not have a state estate tax at all, so large estates do not face an additional state-level tax on top of the federal one.
The practical result: Pennsylvania heirs may owe inheritance tax on smaller amounts, but the state does not tax large estates the way some other states do. If you are inheriting a significant amount, you may owe federal estate tax (if the total estate is very large) but not Pennsylvania estate tax.
Planning strategies to reduce inheritance tax
If you expect to inherit in Pennsylvania, or if you are planning your own estate, understanding these strategies can lower the tax burden on heirs.
Use beneficiary designations. Life insurance, retirement accounts, and payable-on-death accounts pass directly to named beneficiaries and avoid inheritance tax entirely. If you have a large life insurance policy, naming a beneficiary keeps that money out of the taxable estate.
Hold property as joint tenants with rights of survivorship. When property is held this way — common for married couples — it passes to the surviving owner outside the will and is not subject to inheritance tax. This works for real estate, bank accounts, and investment accounts.
Give money during your lifetime. Pennsylvania does not tax gifts, so you can transfer money to heirs while you are alive without triggering inheritance tax. There is no state limit on how much you can give, though federal gift tax rules may explore to very large gifts.
Leave money to a spouse. Spousal inheritances are completely exempt from Pennsylvania inheritance tax. If you are married, leaving assets to your spouse avoids the tax entirely.
A tax professional or estate attorney can help you structure your assets to minimize what heirs owe. The cost of professional information often pays for itself in tax savings.
Frequently Asked Questions
Do I have to pay Pennsylvania inheritance tax if I live out of state?
Yes. If you inherit property located in Pennsylvania, or if the deceased lived in Pennsylvania, you owe Pennsylvania inheritance tax regardless of where you live. The tax is based on the location of the asset and the deceased's residency, not the heir's location.
What if the person who died had no will?
Pennsylvania's intestacy law determines who inherits. The inheritance tax still applies based on your relationship to the deceased. The executor or administrator of the estate files the inheritance tax return the same way they would if there was a will.
Can I deduct inheritance tax on my federal income tax return?
No. Inheritance tax is not deductible on your federal income tax return. It is a separate state tax that you pay in addition to any federal taxes owed on the inherited assets.
Does Pennsylvania tax inherited retirement accounts like IRAs?
Inherited IRAs and 401(k)s are not subject to Pennsylvania inheritance tax because they pass directly to a named beneficiary outside the estate. However, you may owe federal income tax on distributions you take from the account, depending on the type of account and your relationship to the deceased.
What happens if the executor does not file the inheritance tax return?
The Department of Revenue can pursue the executor and the heirs for unpaid tax, penalties, and interest. Penalties start at 5% per month of the unpaid tax. It is important to file on time even if the estate does not have enough money to pay when ready — the executor can request a payment plan.