Whether you owe inheritance tax depends on which state you live in, not the federal government

The federal government does not have an inheritance tax. Six states do: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you inherit money or property and live in one of those states, you may owe state inheritance tax on what you receive — but the rules and rates vary significantly by state and by your relationship to the person who died.

The confusion often comes from the fact that the person who died's estate might owe federal estate tax before anything is distributed to heirs. That is a different tax, paid by the estate itself, not by you as the inheritor. Most estates do not owe it because the federal threshold is very high — $13.61 million in 2024, though this amount changes yearly and is set to drop in 2026 unless Congress acts.

Key Takeaways

  • Only six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
  • Inheritance tax is owed by the person receiving the inheritance, not by the estate, and rates depend on your relationship to the deceased.
  • Spouses, children, and grandchildren often pay lower rates or no tax at all, while unrelated heirs pay higher rates.
  • The federal government taxes large estates before distribution, but most estates fall below the threshold and owe nothing.
  • Your state of residence at the time of inheritance determines whether you owe state inheritance tax, regardless of where the deceased lived.

Which states have inheritance tax and what the rates are

Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania each have their own inheritance tax system. The tax is paid by the person who inherits, not by the estate. The amount you owe depends on three things: which state, how much you inherit, and your relationship to the person who died.

In most of these states, spouses and children pay nothing or a reduced rate. For example, in Pennsylvania, spouses and children under 21 are exempt. In Iowa, spouses, children, and grandchildren pay no tax. In Kentucky, the rate for spouses and children is 2 to 4 percent, while unrelated heirs pay 6 to 16 percent. New Jersey exempts spouses, children, parents, and grandparents but taxes other relatives and unrelated people at rates from 11 to 16 percent. Maryland and Nebraska have similar structures where close relatives pay less or nothing.

If you live in a state with no inheritance tax, you generally do not owe inheritance tax on money or property you inherit, even if the deceased lived in one of the six states that has it. Your state of residence is what matters.

How federal estate tax differs from state inheritance tax

Federal estate tax and state inheritance tax are separate. Federal estate tax is paid by the estate before money goes to heirs. State inheritance tax is paid by each heir on what they receive. Understanding the difference matters because they affect different people at different times.

The federal estate tax applies only to estates larger than $13.61 million in 2024. The executor of the estate — usually named in the will — handles paying federal estate tax from the estate's assets before distributing anything to heirs. Most people never deal with federal estate tax because their estates are smaller than the threshold. This threshold is scheduled to drop to around $7 million per person in 2026 unless Congress changes the law, so it is worth monitoring if you are planning an estate.

State inheritance tax, by contrast, applies to what each individual heir receives in the six states that have it. You pay it on your portion of the inheritance, not on the total estate. A spouse might owe nothing while a sibling owes tax on the same inheritance, depending on the state's rules about family relationships.

How to learn about you owe inheritance tax

Start by checking whether you live in one of the six inheritance tax states. If you do not, you almost certainly owe no state inheritance tax. If you do live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, look up that state's specific rules about your relationship to the deceased and the amount you are inheriting.

Each state publishes its own inheritance tax forms and instructions. Pennsylvania's Department of Revenue, for example, has a form called the PA-41 for inheritance tax returns. New Jersey's Division of Taxation publishes similar guidance. The executor of the estate usually handles filing these forms, but you should ask them directly whether you will owe tax on your inheritance.

If the estate is large enough to owe federal estate tax, the executor will file a federal estate tax return (Form 706) with the IRS. You can ask to see a copy of this return to understand what the estate owed and what was distributed to you. This helps you understand whether state inheritance tax applies to your portion.

What counts as inheritance for tax purposes

Inheritance tax applies to money, real estate, vehicles, investments, and other property you receive from someone who died. The value used for tax purposes is usually the fair market value of the property on the date of death, not what the deceased originally paid for it.

Some things are not subject to inheritance tax even in the six states that have it. Life insurance proceeds paid directly to a named beneficiary are usually exempt. Money in a payable-on-death bank account goes directly to the named beneficiary and typically is not subject to inheritance tax. Retirement accounts like IRAs and 401(k)s that name a beneficiary pass directly to that person outside the estate and usually avoid inheritance tax.

Property that passes through a living trust may also avoid inheritance tax in some cases, depending on the state. This is one reason people use trusts — to control how property passes and potentially reduce tax burden. If you are unsure whether a specific asset is subject to tax, ask the estate's executor or a tax professional in your state.

When you have to pay and how to file

In states with inheritance tax, the important date to file a return is usually nine months after the death, though some states allow extensions. The executor typically files the return on behalf of all heirs, or each heir files their own return depending on the state. You should ask the executor which approach your state uses.

Payment is usually due at the same time as the return. Some states allow the executor to pay the tax from the estate before distributing money to heirs, while others require each heir to pay their own share. Again, this varies by state, so check with the executor or your state's tax department.

If you are the executor and need to file an inheritance tax return, contact your state's tax department for the forms and instructions. If you are an heir and unsure whether you owe tax, ask the executor directly. If the executor is not responsive or you inherit outside of a formal estate process, contact your state's tax department — they can tell you whether you owe tax and how to file.

When to talk to a tax professional

If you inherit a large amount of money or complex property — real estate, a business, significant investments — it is worth talking to a tax professional in your state. They can tell you exactly what you owe in both state and federal taxes and help you file correctly.

You should also consult a professional if the estate is large enough that federal estate tax might explore, if you inherit in multiple states, or if you are the executor managing the estate for others. A mistake on an inheritance tax return can result in penalties and interest, so getting it right the first time is worth the cost of professional help.

Many tax professionals offer a free initial consultation, so you can ask whether your situation is straightforward enough to handle on your own or whether you need ongoing help. If money is tight, your state's tax department can usually answer basic questions about whether you owe tax and how to file — that service is free.

Frequently Asked Questions

Do I owe federal inheritance tax?

No. The federal government does not have an inheritance tax. The federal government taxes large estates before distribution, but that is paid by the estate, not by you as an heir. You only owe state inheritance tax if you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania.

What if the person who died lived in a state with inheritance tax but I live in a state without it?

Your state of residence is what matters. If you live in a state without inheritance tax, you do not owe state inheritance tax on what you inherit, regardless of where the deceased lived. However, the estate itself may still owe federal estate tax if it is large enough.

Do I have to pay inheritance tax on life insurance?

Usually no. Life insurance proceeds paid directly to a named beneficiary are typically exempt from inheritance tax in the six states that have it. The same is true for retirement accounts and payable-on-death bank accounts that name a beneficiary. These assets pass outside the estate and avoid the tax.

How much do I owe if I inherit from my spouse?

In most of the six inheritance tax states, spouses are exempt from inheritance tax entirely. Iowa, Pennsylvania, and New Jersey exempt spouses completely. Kentucky and Maryland tax spouses at lower rates than other heirs. Check your specific state's rules, but spousal inheritance is usually taxed lightly or not at all.

What if I do not know whether the estate owes federal tax?

Ask the executor directly. If the estate is large enough to owe federal estate tax, the executor will file Form 706 with the IRS. You can request a copy of this return to see what was owed and what was distributed to you. If the executor does not respond, contact your state's tax department — they can point you toward the right information.