Only Six States Currently Tax Inheritance
Inheritance tax is a state-level tax on money or property you receive from someone who has died. Only six states impose it: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you inherit from someone in any other state, you owe no state inheritance tax, regardless of where you live.
Inheritance tax is different from estate tax. Estate tax is paid by the person's estate before money is distributed to heirs; inheritance tax is paid by the person receiving the inheritance. Most states have neither tax. The six that do have inheritance tax also vary in what they tax, who pays, and how much the tax is.
Your location when you inherit does not matter. What matters is where the person who died lived. If your parent dies in Pennsylvania and you live in Florida, you owe Pennsylvania inheritance tax. If your parent dies in Florida and you live in Pennsylvania, you owe nothing.
Key Takeaways
- Six states tax inheritance: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
- Inheritance tax depends on the state where the person who died lived, not where you live.
- Tax rates and exemptions vary by state and by your relationship to the person who died—spouses and children often pay less or nothing.
- The value of what you inherit, the type of property, and how quickly you inherit all affect whether you owe tax.
- Federal inheritance tax does not exist; only these six states charge it.
How Inheritance Tax Works in Each State
Iowa taxes all heirs except spouses and direct descendants (children, grandchildren). The tax rate ranges from 1 percent to 16 percent depending on the heir's relationship to the deceased and the amount inherited. Amounts under $25,000 are typically exempt.
Kentucky taxes all heirs except spouses, children under 18, and charitable organizations. The rate ranges from 4 percent to 16 percent. Amounts under $1,000 are exempt.
Maryland taxes only those who are not spouses or lineal descendants (children, grandchildren, parents, grandparents). The rate is a flat 10 percent on amounts over $1,000.
Nebraska taxes all heirs except spouses and direct descendants. The rate ranges from 1 percent to 18 percent. Amounts under $40,000 are typically exempt.
New Jersey taxes all heirs except spouses, children under 25, parents, and grandparents. The rate ranges from 11 percent to 16 percent depending on the heir's relationship and the amount inherited.
Pennsylvania taxes all heirs except spouses and direct descendants. The rate is a flat 4.5 percent to 15 percent depending on the heir's relationship to the deceased.
Who Pays the Tax and When
The heir—the person receiving the inheritance—is responsible for paying the tax, not the estate. However, the executor of the estate (the person managing the dead person's affairs) often withholds the tax from what they distribute to you and pays it to the state on your behalf. This means you may receive less money than the will says you should.
The tax is usually due within a set time after the person dies, typically between 8 and 12 months. If the executor does not pay it, the state can pursue the heir for the unpaid amount. Some states allow extensions if the estate is complicated or if the heir requests one.
If you inherit property rather than cash, you may need to pay the tax in installments or arrange a payment plan with the state. The executor should explain how the tax will be handled when they contact you about the inheritance.
Exemptions and Who Pays Nothing
Spouses are exempt from inheritance tax in all six states. This is the broadest exemption across the board. Direct descendants—children and grandchildren—are exempt in Iowa, Nebraska, and Pennsylvania. In Kentucky, children under 18 are exempt but adult children are taxed. In New Jersey, children under 25 are exempt.
Parents and grandparents are exempt in New Jersey and Maryland but taxed in the other four states. Siblings are taxed in all six states unless they fall into another exempt category. Unrelated people—friends, distant cousins, unmarried partners—are taxed at the highest rates.
Charitable organizations and religious institutions are exempt in all six states. Some states also exempt life insurance proceeds or retirement accounts, though the rules vary. Check with the executor or a tax professional in the relevant state to confirm what is and is not taxed.
How Much Tax You Might Owe
The amount depends on three things: the state, your relationship to the person who died, and how much you inherited. A spouse inheriting $500,000 in Pennsylvania owes nothing. An adult sibling inheriting $500,000 in Pennsylvania owes between $22,500 and $75,000, depending on the exact rate applied to that amount.
Most states have a threshold below which no tax is owed. Iowa exempts amounts under $25,000 for most heirs. Kentucky exempts amounts under $1,000. Maryland and Nebraska have similar thresholds. If you inherit less than the threshold, you owe nothing even if you are in a taxed category.
The tax is calculated on the amount you inherit, not on the total value of the estate. If an estate is worth $1 million and is split among four heirs, each heir is taxed only on their $250,000 share. The executor will calculate your share and the tax owed on it.
What Happens If You Live in a Different State
You still owe the inheritance tax of the state where the person died. If you live in a state with no inheritance tax and inherit from someone in Pennsylvania, you owe Pennsylvania tax. If you live in Pennsylvania and inherit from someone in Florida, you owe nothing because Florida has no inheritance tax.
Some states offer a credit if you pay inheritance tax to another state, but this is rare and limited. The safest approach is to assume you owe tax based on where the person who died lived. The executor should handle this, but if you are managing the inheritance yourself, contact the tax department in the state where the person died.
How to Find Out What You Owe
The executor of the estate is responsible for calculating and paying inheritance tax. They should contact you with information about what you are inheriting and what tax, if any, you owe. If you do not hear from the executor within a few months of the death, contact them directly or ask a family member for their contact information.
You can also contact the tax department in the state where the person died. Each state has a revenue or taxation office that handles inheritance tax. They can tell you the tax rate for your situation and answer questions about exemptions or payment plans. The executor's attorney can also help clarify what you owe.
If the inheritance is large or complicated, or if you are unsure whether you are taxed, consider consulting a tax professional or attorney in the state where the person died. They can review the will, calculate your exact tax liability, and explain your options.
Frequently Asked Questions
Do I owe federal inheritance tax?
No. The United States does not have a federal inheritance tax. Only six states tax inheritance. You may owe federal estate tax if the total estate is very large (over $13.61 million in 2024), but that is paid by the estate, not by individual heirs.
What if the person who died had property in multiple states?
You owe inheritance tax to the state where the person lived when they died. If they owned property in other states, those states may have their own rules about taxing that property, but inheritance tax is based on the deceased person's state of residence, not where the property is located.
Can I avoid inheritance tax by moving to a different state?
No. The tax is based on where the person who died lived, not where you live. Moving after you inherit does not change what you owe. You must pay the tax to the state where the person died, even if you move away when ready after.
What if the executor does not pay the inheritance tax?
The state can pursue you for the unpaid tax, even if the executor was supposed to pay it. If you suspect the executor is not paying, contact the tax department in the relevant state or consult an attorney. You may be able to withhold your share of the inheritance until the tax is paid.
Are retirement accounts and life insurance taxed?
Rules vary by state. Some states exempt life insurance and retirement accounts from inheritance tax; others do not. Ask the executor or contact the tax department in the state where the person died to confirm whether these assets are taxed.