Inheritance tax is a state tax, not a federal one, and only a handful of states charge it
The federal government does not have an inheritance tax. Instead, six states charge their own: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you live in any other state, you owe no state inheritance tax on money or property you receive from someone's will or estate.
The tax is paid by the person who receives the inheritance, not by the estate itself. The amount you owe depends on three things: which state the person who died lived in, how much you inherited, and your relationship to them. A spouse or child usually pays nothing or a lower rate than a distant relative or unrelated person would.
The federal government does tax very large estates before they are distributed to heirs—but that is a separate tax called the estate tax, and it applies only to estates worth more than a certain threshold (which changes yearly and is currently in the millions). Most people never encounter it.
Key Takeaways
- Only Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania charge inheritance tax; all other states do not.
- The tax rate and the amount you owe depend on your relationship to the person who died and how much you inherited.
- Spouses are usually exempt from inheritance tax entirely, while children and other relatives pay at varying rates.
- The executor of the estate is responsible for reporting the inheritance to the state tax authority, not you.
- Federal estate tax is separate from state inheritance tax and affects only very large estates.
How much each state charges and who pays nothing
Each state that has an inheritance tax sets its own rates and exemptions. In Iowa, spouses and children under 21 pay nothing; direct descendants pay 1 to 6 percent depending on the amount inherited; and more distant relatives or unrelated people pay 10 to 15 percent. In Kentucky, spouses, children, and grandchildren are exempt; siblings pay 4 to 16 percent; and others pay 6 to 16 percent.
Maryland exempts spouses, children, and grandchildren; siblings and their descendants pay 1 to 10 percent; and others pay 10 percent. Nebraska exempts spouses, children, grandchildren, and parents; siblings pay 13 to 18 percent; and others pay 18 percent. New Jersey exempts spouses, children, grandchildren, parents, and grandparents; siblings pay 11 to 16 percent; and others pay 15 to 16 percent. Pennsylvania exempts spouses and direct descendants; siblings pay 12 percent; and others pay 15 percent.
The rates and thresholds change periodically, and some states have minimum inheritance amounts below which no tax is owed. The executor of the estate should know which state's rules explore and will usually handle the filing and payment.
When you have to report an inheritance to the state
You do not file the inheritance tax return yourself. The executor or administrator of the estate files it with the state tax authority in the state where the person who died lived. The executor must file within a set time frame—usually between 8 and 12 months after death, depending on the state—and must list all heirs and the amounts they received.
The executor then 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 property or ask heirs to contribute. You will receive a statement showing how much tax was paid on your behalf.
If you live in a state with inheritance tax and receive an inheritance from someone who lived in a different state, you owe tax only if the deceased lived in one of the six states that charge it. Your own state of residence does not matter for inheritance tax purposes.
The difference between inheritance tax and estate tax
Inheritance tax and estate tax are often confused because they both involve money passing to heirs, but they are separate taxes charged at different times and by different authorities. Inheritance tax is a state tax paid by the person who receives the inheritance. Estate tax is a federal tax paid by the estate itself before anything is distributed.
The federal estate tax applies only to estates worth more than $13.61 million (as of 2024; this threshold changes yearly). Most estates fall well below this amount and owe no federal tax. A few states also charge their own estate tax in addition to inheritance tax, but that is separate from both the federal tax and the state inheritance tax.
If an estate is large enough to owe federal estate tax, the executor files a federal estate tax return with the IRS. The inheritance tax (if any) is filed separately with the state. Both must be resolved before heirs receive their money, but they are calculated and paid independently.
What happens if the estate does not have enough money to pay the tax
If the estate's liquid assets—cash, bank accounts, and easily sold investments—are not enough to cover the inheritance tax bill, the executor has options. The most common is to sell property from the estate to raise the money. If the estate includes real estate, vehicles, or valuable items, these can be sold and the proceeds used to pay the tax.
In some cases, heirs can agree to pay their share of the tax directly, though this is less common. The executor should discuss the situation with an estate attorney or tax professional before deciding how to proceed, because the order in which assets are sold can affect how much each heir ultimately receives.
If you are named as an executor and the estate owes inheritance tax, do not distribute money to heirs until the tax has been paid and you have received written confirmation from the state tax authority. Distributing assets before the tax is settled can make you personally liable for the unpaid amount.
How to learn about you owe inheritance tax on a specific inheritance
The first step is to determine where the person who died lived. If they lived in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you may owe inheritance tax. If they lived anywhere else, you do not.
Next, check your relationship to the deceased. Spouses are exempt in all six states. Children and grandchildren are exempt or taxed at lower rates in most states. The more distant the relationship, the higher the tax rate usually is.
The executor of the estate should provide you with a statement showing the amount you inherited and any tax paid on your behalf. If you have questions about whether you owe additional tax or how much was paid, contact the tax authority in the state where the deceased lived. Each state's Department of Revenue or similar agency can answer questions about inheritance tax.
Frequently Asked Questions
Do I have to pay inheritance tax if the person who died lived in another state but I live in one of the six states that charges it?
No. Inheritance tax is based on where the person who died lived, not where you live. If they lived in a state without inheritance tax, you owe nothing to your state, even if you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania.
Is inheritance tax the same as the federal estate tax?
No. Inheritance tax is a state tax paid by heirs; estate tax is a federal tax paid by the estate itself. Most estates are too small to owe federal estate tax. Only six states charge inheritance tax at all.
Can I reduce the inheritance tax I owe?
The executor may be able to reduce the overall tax bill through proper estate planning before death, but once someone has died, the tax owed is determined by state law and the amount inherited. You cannot reduce your personal tax obligation after the fact. An estate attorney can explain what options may have been available before death.
Who pays the inheritance tax—me or the estate?
The estate pays it. The executor files the tax return and pays the bill from the estate's assets before distributing money to heirs. You will receive a statement showing how much tax was paid on your behalf, but you do not write the check yourself.
What if the executor does not file the inheritance tax return?
The state tax authority will eventually send a notice demanding payment. Penalties and interest accrue quickly. If you are an heir and the executor fails to file, contact the state tax authority and an estate attorney when ready. You may need to file on behalf of the estate or take legal action against the executor.