Six states currently have an inheritance tax

Only six states tax what you inherit from someone who dies: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. No federal inheritance tax exists — the IRS does not tax inheritances at all. The six state taxes explore only to property you receive from a deceased person's estate, and the tax rate and what gets taxed depend on your relationship to the person who died and the value of what you inherit.

An inheritance tax is different from an estate tax. An estate tax is paid by the estate itself before money is distributed to heirs. An inheritance tax is paid by the person receiving the inheritance. Only Maryland and New Jersey have both; the other four have only an inheritance tax. This distinction matters because it changes who writes the check and when.

If you live in one of these six states and someone dies leaving you money or property, you may owe tax on it. The amount depends on how you were related to the deceased, the total value of what you received, and the state's tax brackets and exemptions.

Key Takeaways

  • Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania are the only states with an inheritance tax; no federal inheritance tax exists.
  • The tax rate and what is exempt depends on your relationship to the deceased — spouses and children usually pay nothing or a lower rate than distant relatives.
  • Maryland and New Jersey tax both the estate and inheritances; the other four tax only what heirs receive.
  • Real estate, bank accounts, and investment accounts can all be subject to inheritance tax depending on the state and your relationship to the deceased.

How the six state inheritance taxes work

Each of the six states sets its own tax rate, exemptions, and rules about who pays. Iowa taxes inheritances at rates from 1% to 16%, depending on the heir's relationship to the deceased and the amount inherited. Spouses, children, and grandchildren are exempt. Kentucky taxes at rates from 4% to 16% and exempts spouses and direct descendants. Maryland taxes at 10% on most inheritances but exempts spouses, children, and grandchildren. Nebraska taxes at rates from 1% to 18% and exempts spouses, children, parents, and grandparents. New Jersey taxes at rates from 11% to 16% and exempts spouses, children, parents, and grandparents. Pennsylvania taxes at rates from 4.5% to 15% and exempts spouses and direct descendants.

In all six states, the person who inherits the property is responsible for paying the tax, not the estate. This means if you inherit $50,000 in New Jersey and you are not a spouse or direct descendant, you will owe tax on that amount. The executor of the estate usually handles filing the inheritance tax return and may deduct the tax from your inheritance before paying you.

Some inheritances are completely exempt from tax in these states. A surviving spouse inherits tax-free in all six states. Children and grandchildren are exempt in most of them. The rules vary enough that you should check the specific state's rules if you are inheriting in one of these states.

What property counts as an inheritance for tax purposes

An inheritance tax applies to most types of property you receive from a deceased person's estate: cash, bank accounts, investment accounts, real estate, vehicles, jewelry, and business interests. The tax is based on the fair market value of the property at the time of death, not what you sell it for later.

Some property may pass outside the estate and avoid inheritance tax altogether. Money in a payable-on-death bank account, life insurance proceeds, and retirement accounts with a named beneficiary usually go directly to the named person without going through the estate. These transfers often avoid inheritance tax because they do not pass through probate. However, the rules vary by state, so you should verify with the state's tax authority or an accountant if you are unsure whether a specific asset is taxable.

Exemptions and thresholds in each state

Each state sets a minimum amount you can inherit before owing tax. Iowa exempts the first $25,000 per heir. Kentucky exempts the first $1,000 per heir. Maryland has no threshold — all inheritances above the exempt relationships are taxed. Nebraska exempts the first $40,000 per heir. New Jersey exempts the first $25,000 per heir. Pennsylvania exempts the first $3,500 per heir.

The relationship between the heir and the deceased determines the tax rate and exemptions. Spouses pay the lowest rate (usually zero) in all six states. Children and grandchildren pay a lower rate than siblings, aunts, uncles, or unrelated people. In some states, siblings are taxed at a higher rate than children but lower than strangers. Unrelated people often pay the highest rate.

These thresholds and rates change occasionally, so if you are inheriting in one of these states, check the state's tax department website or consult a tax professional to confirm the current rules.

How to report an inheritance in a taxable state

The executor of the estate is usually responsible for filing an inheritance tax return with the state. The executor collects information about each heir and the value of what they inherited, then files the return within a set time frame — usually within nine months of the death. The executor may pay the tax from the estate's funds or ask heirs to pay directly.

If you are the heir, you may receive a notice from the state tax authority asking you to pay, or the executor may deduct the tax from your inheritance before sending you the money. Keep records of what you inherited and any tax paid, in case the state audits the return later.

If you inherit in a state where you do not live, you may still owe tax to that state. The state where the deceased lived at the time of death is what matters for inheritance tax, not where you live. If you inherit real estate in one of these six states, you will owe tax to that state regardless of where you live.

States with an estate tax instead of an inheritance tax

Fifteen states and Washington, D.C. have an estate tax, which is different from an inheritance tax. An estate tax is paid by the estate itself before money goes to heirs, not by the heirs. These states are: Connecticut, Delaware, Illinois, Maine, Massachusetts, Minnesota, Mississippi, Missouri, New York, Oregon, Rhode Island, Vermont, Washington, and Wisconsin, plus Washington, D.C.

An estate tax applies only to estates above a certain value, which varies by state. In some states, the threshold is $1 million; in others, it is $5 million or higher. Most people do not have estates large enough to owe estate tax. If you inherit in one of these states, you usually do not owe tax on the inheritance itself — the estate pays the tax before distributing money to you.

Maryland and New Jersey are the only states with both an inheritance tax and an estate tax. If you inherit in either of these states, the estate may owe estate tax, and you may owe inheritance tax, depending on the size of the estate and your relationship to the deceased.

What to do if you inherit in one of these six states

If someone dies and leaves you property in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, contact the executor of the estate or the deceased person's attorney to find out whether you will owe inheritance tax. Provide your relationship to the deceased and ask what the tax will be.

Keep all documents related to the inheritance: the will, the death certificate, bank statements showing the value of accounts at the time of death, and any tax bills or receipts. These records help you prove the value of what you inherited if the state audits the return.

If you have questions about the tax, contact the tax department in the state where the deceased lived. Each state has a website with forms and instructions. You can also consult a tax professional or estate attorney in that state — they can tell you exactly what you owe and help you file the return if needed.

Frequently Asked Questions

Do I owe federal tax on an inheritance?

No. The federal government does not tax inheritances. You only owe tax to a state if you inherit in one of the six states with an inheritance tax. However, if the inherited property generates income later — such as interest on a bank account or rent from real estate — you will owe federal income tax on that income.

If I inherit from someone who lived in Pennsylvania but I live in Ohio, do I owe Pennsylvania inheritance tax?

Yes. The state where the deceased lived at the time of death is what matters, not where you live. If the deceased lived in Pennsylvania, Pennsylvania can tax the inheritance even if you live in Ohio.

Are life insurance proceeds subject to inheritance tax?

Usually not. Life insurance proceeds paid to a named beneficiary typically pass outside the estate and avoid inheritance tax. However, if the insurance proceeds go into the estate because there is no named beneficiary, they may be subject to inheritance tax. Check with the state's tax authority or an accountant if you are unsure.

Can I reduce the inheritance tax I owe?

The tax rate is set by the state and depends on your relationship to the deceased. You cannot reduce the rate itself, but you may be able to reduce the amount taxed if some of the inheritance qualifies for an exemption. Spouses and direct descendants are exempt in most of these states, so if you fall into one of those categories, you may owe nothing.

What happens if I do not pay the inheritance tax?

The state can place a lien on the inherited property, garnish your wages, or take other collection actions. It is important to pay the tax on time or work out a payment plan with the state if you cannot pay in full. Contact the state tax authority if you are having trouble paying.