The inheritance tax is a state-level tax on money or property you receive from someone who has died

An inheritance tax is a tax you owe on assets you inherit — money, real estate, vehicles, or other property left to you by someone who died. It is different from an estate tax, which the estate itself pays before distributing anything to heirs. With an inheritance tax, you pay the tax on what you actually receive.

Only six states currently have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax rate and what gets taxed depends on your relationship to the person who died and the value of what you inherit. A spouse or minor child often pays nothing. A distant relative or unrelated person may pay 15 percent or more.

If you live in a state without an inheritance tax, you owe nothing to that state, even if the person who died lived there. If you live in one of the six states that has the tax, you may owe it on inheritances from anywhere in the country.

Key Takeaways

  • Inheritance tax is owed by the person who receives the inheritance, not by the estate, and only applies in Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
  • Close relatives like spouses and children are usually exempt or pay a lower rate, while more distant relatives and non-relatives pay higher rates.
  • The tax is based on your relationship to the deceased and the dollar amount of what you inherit, not on the total size of the estate.
  • You do not owe inheritance tax in states that do not have one, regardless of where the deceased person lived or where the assets are located.

How inheritance tax differs from estate tax

An estate tax is paid by the estate itself before money goes to heirs. The federal government has an estate tax on estates over a certain value (currently $13.61 million for deaths in 2024, though this amount changes yearly). Some states also have their own estate taxes.

An inheritance tax is paid by each heir on what they personally receive. You might owe inheritance tax even if the total estate was small, because the tax is based on your individual inheritance, not the estate's total value. The two taxes work differently and are not the same thing.

A few states — Maryland, New Jersey, and Pennsylvania — have both an estate tax and an inheritance tax. If you inherit in one of those states, the estate may owe one tax and you may owe the other, depending on the size of the estate and your relationship to the deceased.

Tax rates and exemptions by state

Each state that has an inheritance tax sets its own rates and decides who is exempt. Generally, the closer your relationship to the deceased, the lower your rate or the more likely you are exempt entirely.

Iowa: Spouses and children are exempt. Grandchildren pay 1 to 5 percent depending on the amount. Siblings pay 5 to 10 percent. More distant relatives and non-relatives pay 10 to 15 percent.

Kentucky: Spouses, children, and grandchildren are exempt. Siblings pay 4 to 16 percent. More distant relatives pay 4 to 16 percent. Non-relatives pay 6 to 16 percent.

Maryland: Spouses and children are exempt. Grandchildren, parents, and siblings are exempt if they inherit less than $1,000. Larger amounts to these relatives are taxed at 0 to 10 percent. Non-relatives pay 10 percent on amounts over $1,000.

Nebraska: Spouses, children, and grandchildren are exempt. Siblings pay 1 to 18 percent. More distant relatives pay 1 to 18 percent. Non-relatives pay 1 to 18 percent.

New Jersey: Spouses, children, and grandchildren are exempt. Siblings and their descendants pay 11 to 16 percent. More distant relatives pay 11 to 16 percent. Non-relatives pay 15 to 16 percent.

Pennsylvania: Spouses and children are exempt. Grandchildren pay 0 percent. Siblings pay 15 percent. More distant relatives and non-relatives pay 15 percent.

What counts as inheritance and what does not

Inheritance tax applies to most property you receive: cash, bank accounts, real estate, vehicles, stocks, bonds, retirement accounts, and personal items of value. The tax is based on the fair market value of the property at the time of death.

Some assets are usually exempt from inheritance tax even in states that have it. These include life insurance proceeds paid directly to a named beneficiary, money in a payable-on-death bank account that goes directly to the named person, and retirement accounts like IRAs or 401(k)s that pass directly to a named beneficiary. These assets bypass the estate and go straight to the person named, so they are not subject to inheritance tax.

Property that passes to a spouse is usually exempt regardless of value. Property that passes to a charity is also typically exempt.

Who files and pays the inheritance tax

The person who inherits the property is responsible for paying the tax, not the estate. However, the executor or administrator of the estate often handles the paperwork and may pay the tax from estate funds before distributing your inheritance to you.

The executor files an inheritance tax return with the state where the tax is owed. This is usually the state where the deceased person lived, though some states tax inheritances received by residents of that state regardless of where the deceased lived.

If the executor does not pay the tax, the state can pursue the heir for payment. If you receive an inheritance and live in one of the six states with an inheritance tax, ask the executor whether you owe anything and when payment is due.

How to learn about you owe inheritance tax

Start by finding out whether the deceased person lived in or owned property in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania. If not, you owe no state inheritance tax.

If the deceased lived in one of those states, contact the executor or administrator of the estate. They should tell you whether an inheritance tax return was filed and whether you owe anything. You can also contact the state tax department directly — each state's revenue or taxation office has a section for inheritance or estate taxes.

The executor should provide you with documentation of what you inherited and its value. Keep records of any inheritance tax you pay, as it may be deductible on your federal income tax return in some cases, though the rules are complex and depend on your specific situation.

Frequently Asked Questions

Do I owe inheritance tax if I live in a state that does not have one?

No. If you live in a state without an inheritance tax, you owe nothing to that state, even if the person who died lived in a state that has one. You may owe tax to the state where the deceased lived, depending on that state's rules.

Is inheritance tax the same as federal income tax on inherited money?

No. Inheritance tax is a state tax. Federal income tax does not explore to inherited money itself, though you may owe federal income tax on earnings from inherited assets going forward — for example, interest on inherited savings or dividends on inherited stocks.

Can I reduce what I owe in inheritance tax?

The tax is based on your relationship to the deceased and the value of what you inherit. You cannot change those facts. However, some states allow deductions for funeral expenses or debts of the estate. Ask the executor or the state tax office whether any deductions explore to your situation.

What happens if the executor does not pay the inheritance tax?

The state can pursue the heir for payment, including interest and penalties. If you receive an inheritance in a state with an inheritance tax, confirm with the executor that the tax has been paid or that you do not owe any.