What inheritance tax actually costs depends on your state and your relationship to the person who died
Inheritance tax is not the same as estate tax, and most states do not charge either one. Only six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you live in any other state, you owe nothing to your state government when you inherit money or property. The federal government also does not tax inheritances themselves — it taxes large estates before they are distributed to heirs.
The amount you owe in a state that does have inheritance tax depends on two things: how much you inherit and your relationship to the person who died. A spouse or child usually pays nothing. A sibling or distant relative pays a percentage that varies by state. The tax is paid by the person who inherits, not by the estate itself.
Key Takeaways
- Only Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania charge inheritance tax; all other states do not.
- Your relationship to the deceased determines your tax rate — spouses and children are usually exempt, while siblings and strangers pay a percentage of what they inherit.
- The amount you owe is calculated on the value of the specific property or money you receive, not the total estate.
- The person who died's state of residence at death is what matters, not where you live.
How the six inheritance tax states calculate what you owe
Iowa charges between 1 and 16 percent depending on your relationship and the amount. Spouses, children, and grandchildren pay nothing. Siblings pay 5 to 15 percent. Everyone else pays 10 to 16 percent. The tax applies only to amounts over a threshold that varies by relationship — for siblings, it is $25,000.
Kentucky charges 4 to 16 percent on amounts over $1,000, but spouses, children, and grandchildren are exempt. Siblings and more distant relatives pay the tax.
Maryland charges 10 percent on amounts over $1,000, but only on estates worth more than $5 million. Spouses, children, and grandchildren are exempt.
Nebraska charges 1 to 18 percent depending on relationship and amount. Spouses and children are exempt. Siblings pay 13 to 18 percent on amounts over $40,000. More distant relatives pay higher rates.
New Jersey charges 11 to 16 percent on amounts over $500 to $25,000 depending on relationship. Spouses, children, parents, and grandparents are exempt. Siblings pay 11 to 16 percent. Unrelated people pay 15 to 16 percent.
Pennsylvania charges a flat rate: spouses pay nothing, children and grandchildren pay 4.5 percent, siblings pay 12 percent, and everyone else pays 15 percent. There is no threshold — the tax applies to the full amount you inherit.
The difference between inheritance tax and estate tax
Inheritance tax is paid by the person who inherits. Estate tax is paid by the estate itself before money is divided among heirs. Seventeen states have an estate tax, which means the estate's value is reduced before you receive your share. The federal government also has an estate tax, but it only applies to estates worth more than $13.61 million in 2024 — a threshold that changes each year and is scheduled to drop in 2026.
If the person who died lived in a state with an estate tax, the estate pays that tax first. Then, if you live in a state with an inheritance tax, you pay inheritance tax on what you actually receive. You could owe both, though some states offer credits to avoid double taxation.
What property counts toward the tax and what does not
Inheritance tax applies to money, real estate, vehicles, investments, and personal property like jewelry or art. It does not explore to life insurance payouts that name you as beneficiary, money in a payable-on-death bank account, or assets held in a living trust. These pass directly to you outside the estate and are not subject to inheritance tax in most cases.
Retirement accounts like IRAs and 401(k)s are also usually exempt if they name you as beneficiary, though you may owe income tax on withdrawals later. The key is whether the asset passed to you by beneficiary designation or contract rather than through the will or intestate succession.
How to report and pay inheritance tax
The executor or administrator of the estate — the person named in the will to handle the estate — is responsible for filing inheritance tax returns in states where they are owed. You do not file it yourself. The executor gathers information about what each heir receives, calculates the tax, and pays it from the estate's assets before distributing your share to you.
If you live in one of the six inheritance tax states and receive property from someone who died, you will receive a notice from the state tax authority or from the executor telling you what you owe. The important date to pay is usually within nine months of the death, though it varies by state. If the executor does not file or pay, you may be contacted directly by the state.
When you might owe federal estate tax
Federal estate tax applies only to very large estates. In 2024, the threshold is $13.61 million. If the person who died had an estate worth less than that, no federal estate tax is owed. The executor does not file a federal estate tax return, and you do not owe anything to the federal government as an heir.
The threshold is scheduled to drop to approximately $7 million per person in 2026 unless Congress changes the law. If you are inheriting from a very wealthy person, the executor's attorney or accountant will handle federal estate tax calculations. As the heir, you will receive your share after federal tax is paid.
What to do if you inherit in a state with inheritance tax
If you inherit from someone who lived in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you will likely receive a bill or notice from that state's tax authority. Do not ignore it. The executor should have already paid it, but if they did not, you are responsible for paying what you owe.
Keep the death certificate, the will or court documents showing what you inherited, and any notices from the state. If you believe you should be exempt — for example, if you are a spouse or child — you may need to provide documentation of your relationship. If the amount seems wrong, you can contact the state tax authority to ask for a review, though you will likely need to provide proof of the property's value at the time of death.
Frequently Asked Questions
Do I owe inheritance tax if I live in a state that does not have one?
No. Your state of residence does not matter. What matters is where the person who died lived. If they lived in a state without inheritance tax, you owe nothing to any state, even if you live in one of the six states that has it.
Is inheritance tax the same as income tax on inherited money?
No. Inheritance tax is a separate state tax on the act of inheriting. Income tax does not explore to inherited money itself. However, if the inherited money earns interest or dividends after you receive it, that income is taxable. Inherited retirement accounts are also subject to income tax when you withdraw from them.
Can I reduce what I owe in inheritance tax?
Not after the person has died. The tax is based on what you inherit and your relationship to them. However, if you are married to the person before they die, you will owe nothing in any state. Some people use trusts or other planning during their lifetime to reduce what heirs will owe, but that decision is made by the person who died, not by you.
What if the executor does not pay the inheritance tax?
The state tax authority will eventually contact you or place a lien on the inherited property. You are responsible for the tax even if the executor fails to pay it. Contact the state tax authority in the state where the person died and ask what you owe and how to pay it.
Does a life insurance payout count toward inheritance tax?
No. Life insurance that names you as beneficiary passes directly to you and is not subject to inheritance tax in any state. It also does not count toward the federal estate tax threshold in most cases, which is one reason life insurance is often used in estate planning.