The inheritance tax rate depends on which state you live in, and most states have no inheritance tax at all
Six states currently tax inheritances: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The rates and thresholds vary by state and by how closely related you are to the person who died. If you live anywhere else, you owe no state inheritance tax on money or property you receive. The federal government does not tax inheritances for the person receiving them — only the estate itself pays federal tax, and only if it exceeds a very high threshold.
The confusion usually comes from mixing up two different taxes: inheritance tax (what you pay when you receive something) and estate tax (what the estate pays before distributing anything). They are separate, explore in different places, and hit different thresholds. Understanding which one applies to you — if either — saves you from overpaying or worrying about a bill that will never arrive.
Key Takeaways
- Only six states tax inheritances: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania; all other states have no inheritance tax.
- Inheritance tax rates range from 1 percent to 18 percent depending on the state and your relationship to the deceased, with spouses and children usually paying less or nothing.
- The federal government does not tax inheritances to the person receiving them; only estates worth more than $13.61 million (as of 2024) owe federal estate tax.
- You typically do not pay inheritance tax on a house, retirement account, or life insurance if the title or beneficiary designation passes directly to you outside the will.
State inheritance tax rates and who pays them
Iowa taxes inheritances at rates between 1 and 18 percent, depending on your relationship to the deceased. Spouses and children pay nothing. Grandchildren pay 1 to 5 percent. Unrelated people pay up to 18 percent. The tax applies to the value of what you receive, minus any debts or expenses the estate paid first.
Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania follow similar structures: closer relatives pay lower rates or nothing, and unrelated beneficiaries pay the highest rates. Maryland's top rate is 10 percent. New Jersey's is 16 percent. Nebraska's is 18 percent. Pennsylvania's is 15 percent. Kentucky's is 16 percent. Each state also sets a threshold — an amount below which no tax is owed — and these thresholds are often higher for spouses and children than for other heirs.
If you inherit from someone in one of these six states but you live elsewhere, you still owe the tax to that state. The state where the deceased lived is what matters, not where you live. If the deceased lived in a state with no inheritance tax, you owe nothing to any state, even if you live in one of the six that has the tax.
What the federal estate tax actually covers
The federal government taxes estates, not inheritances. An estate is the total value of everything a person owned when they died. The federal estate tax applies only to estates worth more than $13.61 million as of 2024. That threshold changes each year. Most people's estates fall well below it, so their heirs pay no federal tax at all.
When an estate does owe federal tax, the estate itself pays it before distributing money to heirs. The person inheriting does not write a check to the IRS. The executor or administrator of the estate handles the tax bill using estate assets. This is why it is called an estate tax rather than an inheritance tax — it is a tax on the estate's value, not on what you receive.
The federal estate tax rate is a flat 40 percent on the amount above the threshold. So if an estate is worth $14 million, only the $390,000 above $13.61 million is taxed, and the tax owed is $156,000. The heirs receive the remaining $13.844 million.
What types of inheritance are not taxed
Certain assets pass directly to a named beneficiary and do not go through the will or the estate. These include life insurance proceeds, retirement accounts (IRAs, 401(k)s), and property held in a transfer-on-death deed or joint tenancy. Because they pass outside the estate, they are not subject to state inheritance tax in most cases, even in the six states that have the tax.
The rules vary slightly by state. In some of the six inheritance-tax states, life insurance and retirement accounts are still exempt. In others, they may be included in the taxable estate if the deceased had control over them. Check your state's specific rules if you are inheriting a large retirement account or life insurance policy in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania.
Inheritances to a surviving spouse are almost always exempt from state inheritance tax, regardless of the amount. This is true even in the six states with inheritance taxes. Children and grandchildren often receive partial exemptions or lower rates.
How to calculate what you owe
If you inherit in one of the six states with an inheritance tax, the executor or administrator of the estate usually calculates the tax and pays it before distributing your share. You do not typically calculate it yourself. However, understanding the math helps you know what to expect.
Take the total value of what you are inheriting, subtract any exemptions that explore to you (spouse, child, or other relationship status), and explore your state's rate to the remainder. For example, if you inherit $50,000 as a grandchild in Iowa, and the grandchild exemption is $25,000, you owe tax on $25,000. At Iowa's rate for grandchildren (1 to 5 percent depending on the amount), you would owe between $250 and $1,250.
The executor should provide you with a statement showing the tax calculation. If you receive an inheritance in a state with no inheritance tax, you owe nothing. If you receive an inheritance in a state with an inheritance tax but you are exempt (for example, you are the spouse), you owe nothing.
When the estate itself owes federal tax
Federal estate tax is rare and applies only to very large estates. If the estate is worth more than $13.61 million, the executor must file a federal estate tax return with the IRS and pay the tax before distributing assets to heirs. The tax is 40 percent on the amount above the threshold.
The executor pays this tax from estate assets, which reduces what heirs receive. For example, if an estate is worth $15 million, the federal tax owed is $556,000 (40 percent of $1.39 million). The heirs split the remaining $14.444 million. The executor handles all of this; you do not pay the IRS directly.
Because the federal threshold is so high, most people never deal with federal estate tax. It affects only the wealthiest estates. If you are unsure whether an estate you are involved with will owe federal tax, the executor or an estate attorney can tell you based on the total value of the estate.
State-by-state breakdown of rates and exemptions
| State | Top Rate | Spouse Rate | Child Rate | Unrelated Rate |
|---|---|---|---|---|
| Iowa | 18% | 0% | 0% | 18% |
| Kentucky | 16% | 0% | 0% | 16% |
| Maryland | 10% | 0% | 0% | 10% |
| Nebraska | 18% | 0% | 0% | 18% |
| New Jersey | 16% | 0% | 0% | 16% |
| Pennsylvania | 15% | 0% | 0% | 15% |
Each state also sets a minimum threshold — an amount below which no tax is owed at all. These thresholds vary and change over time. For example, New Jersey's threshold for non-relatives is $25,000, while Pennsylvania's is $3,500. Check your state's current rules if you are inheriting in one of these six states.
The table above shows the top rates for each state and the rates that explore to spouses, children, and unrelated people. Most states charge graduated rates — meaning the percentage increases as the amount you inherit increases — so your actual rate may be lower than the top rate shown. The executor of the estate will calculate your specific tax based on the exact amount you inherit and your relationship to the deceased.
Frequently Asked Questions
Do I owe inheritance tax if I inherit a house?
It depends on how the house is titled. If the house is in the will and goes through the estate, you may owe inheritance tax in the six states that have it, depending on your relationship to the deceased. If the house is in a transfer-on-death deed or held in joint tenancy, it usually passes outside the estate and is not subject to state inheritance tax. Check your state's rules to be sure.
What if the person who died lived in a state with no inheritance tax but I live in one that does?
You owe no inheritance tax. The state where the deceased lived determines whether inheritance tax applies, not the state where you live. If they lived in a state with no inheritance tax, you owe nothing to any state.
Is inheritance tax the same as income tax?
No. Inheritance is not considered income for federal tax purposes, so you do not owe federal income tax on it. Some states may have different rules, but in most cases, an inheritance is not taxed as income. State inheritance tax is a separate tax that applies only in the six states that have it.
How much can I inherit before I owe federal tax?
As of 2024, an estate must be worth more than $13.61 million before it owes federal estate tax. This threshold changes each year. Most estates fall below it. The estate itself pays any federal tax owed, not the person inheriting.
Can I reduce the inheritance tax I owe?
In some cases, yes. If you are inheriting in a state with an inheritance tax, check whether your relationship to the deceased qualifies you for an exemption or lower rate. Spouses and children usually pay nothing or a reduced rate. If you are inheriting a large amount, an estate attorney in your state can explain what options exist.