Federal estate tax applies only to estates worth more than $13.61 million in 2024

The federal inheritance tax rate is not a single number — it depends on the total value of the estate and which state you live in. The federal government taxes large estates at rates between 18% and 40%, but only if the estate exceeds $13.61 million (this threshold changes yearly). Most people never pay federal estate tax because their estates fall below this limit.

State inheritance taxes are separate and work differently. Only six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — have inheritance taxes at all. These states tax the person who receives the money, not the estate itself, and the rate depends on how closely related they are to the person who died. A spouse typically pays nothing; a child might pay 1% to 15%; a stranger might pay 15% to 18%.

The key distinction: federal estate tax is paid by the estate before money goes to heirs. State inheritance tax is paid by the person receiving the inheritance. You may owe one, both, or neither depending on where you live and how much money is involved.

Key Takeaways

  • Federal estate tax only applies to estates worth more than $13.61 million in 2024, and the rate ranges from 18% to 40% on the amount above that threshold.
  • Only six states have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, and rates vary based on the heir's relationship to the deceased.
  • Spouses are typically exempt from state inheritance tax, while children and more distant relatives face different rates depending on the state.
  • The federal threshold changes every year based on inflation, so an estate that does not owe tax one year might owe it the next.

How the federal estate tax rate works

The federal estate tax uses a progressive rate structure, meaning higher portions of the estate are taxed at higher rates. The rates start at 18% on the first portion of the taxable estate and increase to 40% on the largest portions. However, this only applies to the amount above the $13.61 million threshold in 2024.

For example, if an estate is worth $14 million, only the $390,000 above the threshold is subject to federal tax. That $390,000 would be taxed at 18%, resulting in a federal estate tax of about $70,200. The remaining $13.61 million passes to heirs tax-free at the federal level.

The threshold is set to drop significantly after 2025. Unless Congress changes the law, the threshold will fall to roughly $7 million per person in 2026. This means more estates will owe federal tax starting that year, even if they do not change in value.

State inheritance tax rates by state

The six states with inheritance taxes each set their own rates and rules. Maryland taxes all heirs at 0% to 10% depending on the relationship and the amount inherited. New Jersey taxes spouses at 0%, children at 11% to 16%, and other heirs at higher rates. Pennsylvania taxes spouses at 0%, children at 4.5%, and other heirs at 15%.

Iowa, Kentucky, and Nebraska have similar structures: spouses and sometimes children are exempt, while more distant relatives and non-relatives face rates ranging from 1% to 18%. The exact rate depends on the relationship to the deceased and sometimes on the size of the inheritance.

If you live in one of these six states and inherit money, you will owe state inheritance tax unless you fall into an exempt category (usually spouse or sometimes child). The executor of the estate or the heir themselves may be responsible for paying it, depending on state law.

States with no inheritance tax or estate tax

Most states — 44 of them — have neither an inheritance tax nor a state estate tax. This includes large states like California, Texas, Florida, and New York. If you live in one of these states, you will not owe any state-level tax on an inheritance, though you may still owe federal estate tax if the estate is large enough.

Some states have an estate tax but no inheritance tax. These states tax the estate itself rather than the person receiving the money. Connecticut, Delaware, Illinois, Maine, Massachusetts, Minnesota, Mississippi, Missouri, New York, Oregon, Rhode Island, Vermont, and Washington have estate taxes. The rates and thresholds vary widely — some states tax estates over $1 million, while others do not tax until $5 million or more.

The difference matters: if you live in a state with only an estate tax, the tax is paid from the estate before heirs receive their share. If you live in a state with only an inheritance tax, the person receiving the money pays the tax.

How to find out what you owe

Start by determining the total value of the estate. This includes the house, bank accounts, investments, vehicles, and personal property. The executor of the estate (named in the will) is usually responsible for calculating this value and determining whether any taxes are owed.

Next, check whether the estate exceeds your state's threshold. If you live in one of the six inheritance tax states, look up that state's rates and exemptions based on your relationship to the deceased. If the estate is worth more than $13.61 million, federal estate tax may also explore.

Many estates do not require a tax return at all. If the estate is below the threshold in your state and below the federal threshold, no tax return is necessary. The executor can distribute the money to heirs without filing anything with the IRS or the state.

What happens if the estate owes taxes

If the estate owes federal estate tax, the executor must file Form 706 (the federal estate tax return) with the IRS within nine months of the death. The estate pays the tax from its assets before distributing money to heirs. If the estate does not have enough cash to pay the tax, assets may need to be sold.

For state inheritance tax, the process varies. In some states, the heir pays the tax directly. In others, the executor withholds the tax from the heir's share. Some states require a return to be filed; others do not. The executor or an accountant familiar with your state's rules should handle this.

If taxes are owed and not paid, the IRS or state can place a lien on the estate's assets, preventing distribution to heirs until the debt is settled. This is why it is important to determine tax liability early in the probate process.

Frequently Asked Questions

Do I have to pay inheritance tax on money from a life insurance policy?

Life insurance proceeds are generally not subject to state inheritance tax, but they are included in the estate's total value for federal estate tax purposes. If the policy is owned by the deceased (rather than held in a trust), the payout counts toward the federal threshold. Consult a tax professional about your specific situation.

What if I inherit property in a different state than where I live?

You owe inheritance tax based on the state where the deceased lived, not where you live or where the property is located. If the deceased lived in Pennsylvania and you live in California, Pennsylvania's inheritance tax rules explore to your inheritance, even though California has no inheritance tax.

Can I reduce the inheritance tax I owe?

Some strategies exist, such as setting up trusts before death or gifting money during life, but these must be planned years in advance. Spouses can often transfer assets tax-free. Consult an estate planning attorney or tax professional to explore options for your situation.

Do I owe federal income tax on an inheritance?

Generally, no. Inheritances are not considered income for federal income tax purposes. However, if the inherited asset generates income after you receive it (such as interest or dividends), that income is taxable. The estate itself may owe income tax on income earned before distribution.

What if the estate is worth exactly at the threshold?

Estates valued at or below the threshold owe no federal estate tax. Only the amount above the threshold is taxed. For 2024, an estate worth exactly $13.61 million owes nothing. An estate worth $13.61 million and one dollar owes tax only on that one dollar.