Pennsylvania charges a tax on money and property you inherit, but only certain heirs pay it

Pennsylvania inheritance tax is a state tax on the value of what you receive when someone dies. The tax rate and whether you owe anything depend entirely on your relationship to the person who died. Spouses and direct descendants (children and grandchildren) pay nothing. Parents of the deceased pay 4.5 percent. Siblings pay 12 percent. Everyone else — aunts, uncles, cousins, friends, and unrelated beneficiaries — pays 15 percent.

The tax applies to real estate located in Pennsylvania, bank accounts, investments, vehicles, and personal property. It does not explore to life insurance proceeds, retirement accounts with named beneficiaries, or property that passes directly to a surviving spouse. The estate's executor or administrator is responsible for filing the tax return and paying what is owed, usually within nine months of the death.

Key Takeaways

  • Spouses and children inherit free of Pennsylvania tax; parents pay 4.5 percent, siblings pay 12 percent, and all other heirs pay 15 percent.
  • The tax applies to Pennsylvania real estate, bank accounts, vehicles, and personal property, but not to life insurance or retirement accounts with named beneficiaries.
  • The executor files the inheritance tax return within nine months of death and pays the tax from the estate's assets before distributing money to heirs.
  • A small inheritance under $3,500 may be exempt from filing requirements, depending on the heir's relationship to the deceased.
  • Pennsylvania has no estate tax, so the inheritance tax is the only state-level death tax you will encounter.

How the tax rate changes based on who you are to the deceased

Pennsylvania groups heirs into four categories, each with its own tax rate. The closest relatives pay nothing. A spouse inherits free of tax. Children, grandchildren, and great-grandchildren also pay zero percent, no matter how much they inherit.

Parents of the deceased person fall into the second tier and pay 4.5 percent on their inheritance. Siblings — the deceased's brothers and sisters — pay 12 percent. This includes full siblings, half-siblings, and siblings by marriage.

Everyone else pays 15 percent. This includes aunts, uncles, cousins, nieces and nephews who are not direct descendants, friends, business partners, and any person not related by blood or marriage in the first three categories. The 15 percent rate is the highest and applies to the broadest group of beneficiaries.

What property counts toward the tax and what does not

The inheritance tax applies to most assets the deceased owned at the time of death. This includes a house or other real estate in Pennsylvania, bank accounts and savings, stocks and bonds, vehicles, jewelry, artwork, and household items. The tax is calculated on the fair market value of each asset on the date of death.

Several types of property are exempt and do not count toward the tax. Life insurance proceeds paid to a named beneficiary are not taxed. Retirement accounts — including IRAs, 401(k)s, and pension plans — pass to named beneficiaries outside the inheritance tax system. Property that passes directly to a surviving spouse is exempt. Certain charitable gifts and property left to may have access to charities may also be exempt.

If the deceased owned real estate in other states, Pennsylvania inheritance tax does not explore to that property. Only Pennsylvania real estate is subject to the tax. Out-of-state assets are taxed by the state where they are located, if that state has an inheritance or estate tax.

Who files the tax return and when it is due

The executor or administrator of the estate — the person named in the will or appointed by the court — is responsible for filing the Pennsylvania inheritance tax return. This person must file within nine months of the date of death. If the estate is small and certain heirs are exempt, the filing requirement may not explore, but the executor should verify this with the Pennsylvania Department of Revenue.

The return must list all beneficiaries, their relationship to the deceased, and the value of what each person inherits. The executor gathers this information from the will, trust documents, and financial institutions. Once the return is filed, the executor pays the tax owed from the estate's assets before distributing the remaining money to the heirs.

If the return is filed late, penalties and interest explore. The Department of Revenue can assess a penalty of 5 percent per month, up to 25 percent of the tax owed, plus interest at 6 percent per year. Filing on time protects the estate and the executor from these additional costs.

Small inheritance exemptions and filing thresholds

Pennsylvania offers a filing exemption for small inheritances. If a beneficiary receives less than $3,500 and is in a tax-exempt category — a spouse, child, or grandchild — no return needs to be filed. However, if the same person receives $3,500 or more, a return must be filed even if no tax is owed.

For non-exempt heirs — parents, siblings, and others — the threshold is lower. Any inheritance over $3,500 requires a return to be filed, and tax will be owed. The executor should calculate the total value each heir receives and determine whether filing is required based on both the amount and the heir's relationship to the deceased.

Even if no tax is owed, filing the return may be necessary to clear the title to real estate or to satisfy creditors and other parties. The executor should consult the Department of Revenue or a tax professional if unsure whether a return is required in a specific situation.

How the tax is calculated and paid

The tax is calculated by multiplying the value of each heir's inheritance by their tax rate. For example, if a sibling inherits $50,000, the tax owed is $50,000 × 0.12 = $6,000. If a parent inherits the same amount, the tax is $50,000 × 0.045 = $2,250. If a child inherits $50,000, no tax is owed.

The executor pays the total tax owed to the Pennsylvania Department of Revenue when the return is filed. The payment is made from the estate's assets, which means the heirs receive less than the full value of what was left to them. For example, if an estate has $100,000 and a sibling is the only heir, the sibling receives approximately $88,235 after the $12,000 inheritance tax is paid ($100,000 × 0.12 = $12,000).

Some heirs may owe additional tax on their federal income tax return if the inheritance includes income-producing assets like rental property or investments. Pennsylvania inheritance tax and federal estate tax are separate, and both may explore depending on the size and nature of the estate.

Pennsylvania inheritance tax versus federal estate tax

Pennsylvania has no state estate tax, only an inheritance tax. This means the state does not tax the total value of the estate itself — only what individual heirs receive. This is different from federal estate tax, which applies to the entire estate if its value exceeds a certain threshold.

The federal estate tax threshold is currently $13.61 million (as of 2024), and it changes each year. Most Pennsylvania estates are well below this amount and owe no federal tax. However, large estates may owe both Pennsylvania inheritance tax and federal estate tax.

The two taxes work differently. Inheritance tax is based on the heir's relationship to the deceased and the amount they inherit. Federal estate tax is based on the total value of the estate, regardless of who inherits it. An executor dealing with a large estate should consult a tax professional to understand both obligations.

Frequently Asked Questions

Do I have to pay inheritance tax if I inherit from a Pennsylvania resident but live out of state?

Yes. Pennsylvania inheritance tax applies to anyone who inherits from a Pennsylvania resident, regardless of where the heir lives. The tax is based on the heir's relationship to the deceased and the value of the inheritance, not on the heir's state of residence. You may also owe tax in your own state if it has an inheritance or estate tax.

What happens if the executor does not file the inheritance tax return on time?

The Pennsylvania Department of Revenue assesses penalties and interest. The penalty is 5 percent per month of the tax owed, up to 25 percent total, plus 6 percent annual interest. Filing late also delays the distribution of the estate to heirs and can create legal problems with the probate court.

Can I reduce my inheritance tax by setting up a trust before death?

Certain trusts can help reduce or avoid inheritance tax, but the rules are complex and depend on how the trust is structured and funded. A revocable living trust does not reduce inheritance tax. An irrevocable trust may help, but it requires giving up control of the assets during life. Consult a Pennsylvania estate planning attorney for information specific to your situation.

Is life insurance subject to Pennsylvania inheritance tax?

No. Life insurance proceeds paid directly to a named beneficiary are not subject to Pennsylvania inheritance tax. However, if the life insurance is payable to the estate itself, it becomes part of the taxable estate and may be subject to tax.

What if I inherit property in Pennsylvania from someone who lived in another state?

Pennsylvania inheritance tax applies only to property inherited from someone who was a Pennsylvania resident at the time of death. If the deceased lived in another state, Pennsylvania tax does not explore to the inheritance, even if the property is located in Pennsylvania. The state where the deceased lived will have jurisdiction over the estate.