Pennsylvania's inheritance tax rates depend on your relationship to the person who died

Pennsylvania charges an inheritance tax on money and property you receive from someone's estate, but the rate you pay depends entirely on how you were related to the deceased. Spouses and direct descendants (children and grandchildren) pay nothing. Parents of the deceased pay 4.5 percent. Siblings pay 12 percent. Everyone else—aunts, uncles, cousins, friends, and unrelated beneficiaries—pays 15 percent. These rates have not changed since 1992.

The tax is paid by the person receiving the inheritance, not by the estate itself. If you inherit $50,000 as a sibling, you owe Pennsylvania 12 percent of that amount, which is $6,000. If you inherit the same amount as a spouse, you owe nothing. The executor or administrator of the estate usually handles the paperwork and payment, but you should understand what rate applies to you before the inheritance is distributed.

Key Takeaways

  • Spouses and all direct descendants (children, grandchildren, great-grandchildren) pay zero inheritance tax in Pennsylvania, no matter the amount.
  • Parents of the deceased pay 4.5 percent; siblings pay 12 percent; all other relatives and unrelated people pay 15 percent.
  • The tax is calculated on the value of what you inherit, and the executor typically files the inheritance tax return within nine months of death.
  • Certain assets like life insurance proceeds and retirement accounts with named beneficiaries may pass outside the estate and avoid inheritance tax entirely.

What counts as an inheritance under Pennsylvania law

Pennsylvania inheritance tax applies to real estate, bank accounts, investments, vehicles, and personal property that pass through the deceased person's will or by the laws of intestacy (when someone dies without a will). The tax is based on the fair market value of each asset on the date of death.

Some assets do not go through the estate and are not subject to inheritance tax. These include life insurance proceeds if the policy names a beneficiary other than the estate, retirement accounts (IRAs, 401(k)s) with a named beneficiary, payable-on-death bank accounts, and property held in joint tenancy with rights of survivorship. If you inherit through one of these methods, you will not owe Pennsylvania inheritance tax on that money, even if you would normally be in a taxable category.

How the tax is calculated and paid

The executor or administrator of the estate files a Pennsylvania Inheritance Tax Return (Form PA-41) with the Department of Revenue within nine months of the person's death. The return lists all beneficiaries, their relationship to the deceased, and the value of what each person inherits. The tax owed is calculated based on the relationship category and the inheritance amount.

The executor usually pays the tax from estate funds before distributing money to beneficiaries. If there is not enough cash in the estate to cover the tax, the executor may need to sell assets or ask beneficiaries to contribute. Some beneficiaries may receive their inheritance reduced by the tax owed on their share. You can request a copy of the inheritance tax return from the executor to see exactly how much tax was calculated and paid on your behalf.

Exemptions and thresholds

Pennsylvania does not have a dollar threshold below which inheritance tax is waived. Even a small inheritance is technically subject to tax based on your relationship to the deceased. However, the state does exempt certain types of property entirely: transfers to charitable organizations, transfers to the Commonwealth of Pennsylvania or the federal government, and property passing to a surviving spouse.

If you inherit property that was owned jointly with the deceased—such as a house or bank account held as "joint tenants with rights of survivorship"—that property passes directly to you outside the estate and is not subject to inheritance tax. The same applies to property held in a living trust, which bypasses the estate entirely. These planning methods are often used specifically to avoid inheritance tax.

Comparing Pennsylvania to neighboring states

Pennsylvania is one of only six states that still has an inheritance tax. New Jersey and Maryland also tax inheritances, though their rates and exemptions differ. New Jersey exempts spouses, children, and grandchildren but taxes siblings at 11 to 16 percent depending on the amount. Maryland exempts spouses and direct descendants but taxes others at 10 percent.

New York, Ohio, and Delaware have no inheritance tax at all. If you are moving to or from Pennsylvania, or if the deceased lived in a different state, you may owe tax in multiple states. The executor should consult a tax professional to determine whether federal estate tax also applies, which is separate from Pennsylvania's inheritance tax and depends on the total size of the estate.

What to do if you receive an inheritance

When you receive notice that you are a beneficiary in an estate, ask the executor for a copy of the inheritance tax return or a summary showing your relationship category and the value of your inheritance. This tells you exactly what tax was paid on your behalf. Keep this documentation for your records, as you may need it for your own tax return or if you later sell inherited property.

If you believe the value assigned to an asset is incorrect, or if you think your relationship category was misidentified, you can contact the Pennsylvania Department of Revenue to request a review. The executor can also file an amended return if an error is discovered. Do not ignore a notice from the Department of Revenue; respond within the timeframe given, as penalties and interest accrue on unpaid tax.

Frequently Asked Questions

Do I have to report my inheritance on my federal income tax return?

No. Inheritances are not considered income for federal tax purposes, so you do not report them on your Form 1040. However, if the inherited asset later generates income—such as interest from a bank account or dividends from stocks—that income is taxable. Keep records of the asset's value on the date of death, as this becomes your "basis" for calculating capital gains if you later sell it.

What if the person who died lived in another state but owned property in Pennsylvania?

Pennsylvania taxes inheritances based on where the beneficiary lives, not where the deceased lived or where the property is located. If you live in Pennsylvania and inherit from someone who died in another state, you owe Pennsylvania inheritance tax. If you live outside Pennsylvania and inherit Pennsylvania property, you generally do not owe Pennsylvania tax, though you may owe tax in your home state.

Can I reduce my inheritance tax by disclaiming part of my inheritance?

Yes, but only if you do so within nine months of the person's death and follow strict legal procedures. A disclaimer means you refuse to accept part or all of your inheritance, and it passes to the next person in line. This can lower your tax if you would be in a higher tax bracket than the person receiving it instead. Consult an attorney before disclaiming, as the rules are technical.

Does Pennsylvania inheritance tax explore to retirement accounts like IRAs?

Not if the IRA has a named beneficiary. The money passes directly to that beneficiary outside the estate and avoids inheritance tax. If the IRA names the estate as beneficiary, or if there is no named beneficiary, the money goes through the estate and is subject to inheritance tax based on who receives it.

What happens if the executor does not pay the inheritance tax?

The Department of Revenue can pursue the beneficiary for unpaid tax, plus penalties and interest. The executor can also be held personally liable. If you suspect the executor has not filed the inheritance tax return or paid the tax owed, contact the Department of Revenue or consult an attorney, as the important date is nine months from death.