What inheritance tax actually costs you

Whether you owe tax on money or property you inherit depends almost entirely on which state you live in and how much you receive. The federal government does not tax inheritances for people who receive them — only the estates of people who leave very large amounts (over $13.61 million in 2024) pay federal tax, and that tax is paid by the estate before you get anything. Most states also do not tax inheritances. However, six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — do tax inheritances, and the amount varies by your relationship to the person who died and the size of what you receive.

The states that tax inheritances typically charge 0 to 18 percent depending on whether you are a spouse, child, parent, or more distant relative. Spouses and children usually pay nothing or a low rate. Siblings and unrelated people pay higher rates. The tax is calculated on the value of what you inherit, and some states let you subtract a certain amount before calculating tax.

Key Takeaways

  • The federal government does not tax inheritances received by individuals, only very large estates before distribution.
  • Six states tax inheritances: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, with rates ranging from 0 to 18 percent depending on your relationship to the deceased.
  • Your relationship to the person who died (spouse, child, sibling, or unrelated) determines your tax rate in states that have inheritance tax.
  • The executor or administrator of the estate is responsible for calculating and paying inheritance tax, not you directly.

Which states have inheritance tax and what the rates are

Iowa taxes inheritances at rates from 0 to 15 percent. Spouses and children under 21 pay nothing. Children 21 and older pay 1 to 15 percent depending on the amount. Siblings pay 5 to 15 percent. Unrelated people pay 10 to 15 percent.

Kentucky taxes inheritances at 0 to 16 percent. Spouses, children, parents, and grandchildren pay nothing. Siblings pay 4 to 16 percent. Unrelated people pay 6 to 16 percent.

Maryland taxes inheritances at 0 to 10 percent. Spouses, children, parents, and grandparents pay nothing. Siblings and more distant relatives pay 0 to 10 percent depending on the amount.

Nebraska taxes inheritances at 1 to 18 percent. Spouses, children, and grandchildren pay 1 percent. Parents and grandparents pay 1 percent. Siblings pay 13 to 18 percent. Unrelated people pay 18 percent.

New Jersey taxes inheritances at 0 to 16 percent. Spouses, children, parents, and grandparents pay nothing. Siblings pay 11 to 16 percent. Unrelated people pay 15 to 16 percent.

Pennsylvania taxes inheritances at 0 to 15 percent. Spouses and children pay 0 percent. Parents and grandparents pay 0 percent. Siblings pay 12 percent. Unrelated people pay 15 percent.

How the tax is calculated and who pays it

The person managing the estate — called the executor or administrator — is responsible for calculating inheritance tax and paying it to the state. They do this using the value of what each person receives, not the total value of the estate. If you inherit $50,000 and your sibling inherits $50,000, you each owe tax on your $50,000 share at your own rate based on your relationship to the deceased.

Most states that tax inheritances allow you to subtract a certain amount before tax is owed. This is called an exemption. For example, in Iowa, children 21 and older have a $40,000 exemption, meaning the first $40,000 they inherit is not taxed. In Nebraska, siblings have a $40,000 exemption. The exemption varies by state and by your relationship to the deceased, so the executor will know what applies to you.

The tax is usually paid from the estate itself before money is distributed to heirs. This means you typically do not write a check to the state — the executor handles it. However, if the estate does not have enough liquid money to pay the tax, the executor may ask heirs to contribute, or property may need to be sold.

When you might owe federal estate tax

Federal estate tax is separate from state inheritance tax and applies only to very large estates. In 2024, an estate must be worth more than $13.61 million for federal tax to be owed. This threshold is high enough that most people never encounter federal estate tax. The estate itself pays this tax, not the heirs.

The federal threshold changes each year and is set to drop significantly in 2026 unless Congress changes the law. If you are inheriting from someone with a very large estate, the executor will handle federal tax calculations and payments.

How to learn about you owe inheritance tax

The simplest way to know whether you owe inheritance tax is to ask the executor or administrator of the estate. They are required to understand the tax laws in the state where the deceased lived and will calculate what is owed. If you live in a state that does not tax inheritances, you owe nothing to your state, even if the person who died lived in a state that does.

If you want to research the rules yourself, each of the six states that tax inheritances publishes its own forms and instructions on its department of revenue website. The forms show the tax rates and exemptions. You can also contact the state revenue department directly with questions about your specific situation.

What happens if the estate does not pay the tax

If inheritance tax is owed and not paid, the state can place a claim against the estate or pursue the executor for payment. In some cases, the state can also pursue heirs who received money, though this is less common. The executor has a legal duty to pay taxes before distributing money to heirs, so this situation usually does not arise if the executor is doing their job correctly.

If you are concerned that inheritance tax was not paid when it should have been, contact the state revenue department in the state where the deceased lived. They can tell you whether a tax return was filed and whether any tax is still owed.

Frequently Asked Questions

Do I have to pay inheritance tax if I live in a different state than the person who died?

No. Your state of residence does not matter for inheritance tax purposes. Only the state where the deceased lived determines whether inheritance tax is owed. If you live in a state with no inheritance tax, you owe nothing to your state, even if you inherit from someone in Iowa or Pennsylvania.

What if I inherit a house instead of money?

Inheritance tax is calculated on the fair market value of the property at the time of death, not what the person originally paid for it. The executor determines this value, usually with a professional appraisal. You owe tax on that value, whether you sell the house or keep it. If the estate does not have cash to pay the tax, the house may need to be sold or you may need to contribute money.

Can I reduce the inheritance tax I owe?

The main way to reduce inheritance tax is through the exemption your state allows based on your relationship to the deceased. Spouses and children typically have the largest exemptions or pay no tax at all. You cannot reduce the tax beyond what the state law allows. The executor may be able to structure how the estate is distributed to minimize tax, but this requires planning before death.

Is inheritance tax the same as estate tax?

No. Estate tax is paid by the estate itself on its total value before distribution. Inheritance tax is paid on what each individual heir receives. Most states have one or the other, not both. Federal estate tax applies only to very large estates and is separate from both.