Inheritance taxes are state-level taxes on money or property you receive from someone who has died
An inheritance tax is a tax you pay on assets you inherit — not a tax on the estate itself before it reaches you. Only six states currently have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The federal government does not have an inheritance tax, though it does have an estate tax that applies to very large estates before distribution.
The key difference: an inheritance tax is your bill as the person receiving the money or property. An estate tax is paid by the estate before your inheritance is divided. Some states have both; some have neither. Where you live and where the person who died lived both matter, because inheritance tax rules vary significantly by state.
Most people who inherit do not owe inheritance tax. The tax applies only in the six states listed above, and even then, only if you inherit above a certain amount and only if you fall into a taxable category. Spouses are almost always exempt. Close relatives like children often pay reduced rates or nothing at all.
Key Takeaways
- Inheritance tax exists only in Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — the other 44 states have no inheritance tax at all.
- The tax is paid by the person who inherits, not by the estate, and the rate depends on your relationship to the person who died and the amount you receive.
- Spouses are exempt from inheritance tax in all six states that have it, and children usually pay reduced rates or nothing.
- The federal government has an estate tax, not an inheritance tax, and it applies only to estates worth millions of dollars.
- You owe inheritance tax only in the state where the person who died lived, regardless of where you live.
How inheritance tax rates work by relationship
The amount you owe depends on who you were to the person who died. States divide inheritors into categories, and each category has its own tax rate and exemption threshold — the amount you can inherit before you owe anything.
Class A (closest relatives) usually includes spouses and children. Spouses pay zero in all six states. Children typically pay nothing or a very low rate — in some states, children under a certain age inherit tax-free, while adult children may owe 1% to 3% on amounts above the exemption. In Maryland, for example, a child can inherit up to $5,000 tax-free; amounts above that are taxed at 1%.
Class B (more distant relatives) includes grandchildren, parents, siblings, and in-laws. These inheritors face higher rates — typically 5% to 15% depending on the state — and lower exemption thresholds. A grandchild in Pennsylvania might owe 12% on inherited amounts above $3,500.
Class C (unrelated people) includes friends, unmarried partners, and anyone with no family relationship to the deceased. These inheritors face the highest rates — often 15% or more — and the smallest exemptions. In some states, unrelated inheritors have no exemption at all.
State-by-state inheritance tax rules
Each of the six states that tax inheritance sets its own rates, exemptions, and rules about what kinds of property are taxable. Real estate, bank accounts, stocks, and vehicles are all typically subject to inheritance tax, though some states exempt certain types of property like life insurance proceeds or retirement accounts.
| State | Top Rate | Child Exemption | Spouse Status |
|---|---|---|---|
| Iowa | 15% | $25,000 | Exempt |
| Kentucky | 16% | $1,000 | Exempt |
| Maryland | 10% | $5,000 | Exempt |
| Nebraska | 18% | $40,000 | Exempt |
| New Jersey | 16% | $25,000 | Exempt |
| Pennsylvania | 15% | $3,500 | Exempt |
These rates and exemptions change periodically, so if you are inheriting in one of these states, check the state's department of revenue website for the current rules. The executor of the estate — the person managing the distribution — is usually responsible for reporting inherited assets to the state and paying the tax, though in some cases the inheritor must file and pay themselves.
Inheritance tax versus estate tax
The federal estate tax is different from state inheritance taxes. An estate tax is paid by the estate itself before money is distributed to inheritors. The federal estate tax applies only to estates worth more than $13.61 million (as of 2024), which means the vast majority of estates owe nothing. Some states also have their own estate taxes with lower thresholds.
If an estate owes both federal and state estate tax, the tax is paid from the estate's assets before distribution. This means inheritors receive less, but they do not personally owe the tax. Inheritance tax works the opposite way: the inheritor receives the full amount but then owes tax on it.
A person can inherit in a state with no inheritance tax and owe nothing, even if the person who died lived in a state with inheritance tax — but that is not how it works. You owe inheritance tax based on where the person who died lived, not where you live. If you inherit from someone who died in Pennsylvania, you owe Pennsylvania inheritance tax even if you live in California.
What property is subject to inheritance tax
Most types of property are taxable: real estate, bank accounts, investment accounts, vehicles, jewelry, and household goods. However, some assets are typically exempt or partially exempt depending on the state.
Life insurance proceeds are often exempt from inheritance tax if the policy was owned by the person who died and names you as the beneficiary. Retirement accounts like IRAs and 401(k)s may be exempt or taxed differently because they already have federal tax consequences. Property passing to a spouse is always exempt. Charitable donations are usually exempt if the money goes to a may have access to charity.
Some states exempt small amounts of personal property or household items. Pennsylvania, for example, does not tax household goods and personal effects, though it does tax vehicles and real estate. Check your state's rules to know which assets count toward your inheritance tax bill.
How to report and pay inheritance tax
The executor of the estate is usually responsible for filing an inheritance tax return with the state where the person died. This return lists all assets, identifies all inheritors and their relationships, and calculates the tax owed by each person. The executor then either pays the tax from estate funds or notifies each inheritor of what they owe.
In some states, the inheritor must file their own return and pay directly. The important date to file varies by state — typically 8 to 12 months after death — but you should not wait. If you do not file and pay on time, the state can charge penalties and interest.
If you inherit in a state with no inheritance tax, you file nothing and owe nothing. If you inherit in one of the six states that tax inheritance, the executor should tell you whether you owe tax and how much. If you are unsure, contact the state's department of revenue or a tax professional in that state.
Frequently Asked Questions
Do I owe inheritance tax if I inherit from my parent?
Only if the parent died in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, and only if you inherit above the state's exemption for children. In most of these states, children have a high exemption — Nebraska allows $40,000 tax-free — so many adult children owe nothing. Spouses never owe inheritance tax.
What if the person who died lived in a state with no inheritance tax?
You owe nothing. Inheritance tax applies only in the six states listed. If the person died in any other state, there is no state inheritance tax to pay, regardless of where you live or where the property is located.
Is inheritance tax the same as income tax?
No. Inheritance tax is a separate state tax on the transfer of assets. Income tax applies to money you earn. Inherited money is not considered income for federal tax purposes, though some inherited assets (like retirement accounts) may trigger income tax when you withdraw from them later.
Can I reduce my inheritance tax bill?
The executor may be able to structure the distribution to minimize tax — for example, by distributing to spouses first (who are exempt) or by timing distributions across tax years. A tax professional or estate attorney in the state where the person died can advise on legal ways to reduce the bill.
What happens if I do not pay inheritance tax?
The state can place a lien on inherited property, charge penalties and interest, and pursue collection. If you inherit in one of the six states with inheritance tax, pay what you owe by the important date. If you cannot afford it, contact the state's department of revenue about payment plans.