Six states tax what you inherit, and the rules differ sharply from state income tax
Inheritance tax is a state tax on money or property you receive from someone who has died. Only six states charge it: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax applies to the person receiving the inheritance, not the estate itself — which is why it is different from an estate tax, which some other states charge against the total value left behind.
The amount you owe depends on three things: how much you inherited, what state you live in, and your relationship to the person who died. A spouse or child often pays nothing. A distant relative or unrelated person may pay 15 percent or more. The six states that have this tax set their own rates and thresholds, so what you owe in Pennsylvania is not what you would owe in Iowa.
If you live in a state without inheritance tax, you owe nothing to that state, even if the person who died lived elsewhere. If you live in one of the six states that has it, you may owe tax on what you inherit, regardless of where the deceased lived.
Key Takeaways
- Only Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania charge inheritance tax on what you receive from a deceased person.
- Your relationship to the deceased — spouse, child, sibling, or unrelated — determines your tax rate and whether you owe anything at all.
- The amount of the inheritance and the state where you live both affect how much tax you pay.
- Inheritance tax is separate from federal estate tax and from state income tax on the earnings an inherited account generates after you receive it.
How the six states structure their inheritance tax
Each state that charges inheritance tax groups beneficiaries into classes based on how closely they are related to the deceased. Class A typically includes spouses and children — many states exempt them entirely. Class B includes grandchildren, parents, and siblings. Class C includes aunts, uncles, cousins, and more distant relatives. Class D includes people with no family relationship to the deceased.
Iowa, for example, exempts spouses and children but taxes grandchildren at 5 to 15 percent depending on the amount, and taxes unrelated people at 15 percent. Kentucky exempts spouses, children, and grandchildren but taxes siblings at 4 to 16 percent. Pennsylvania exempts spouses and children but taxes siblings at 4.5 to 15 percent and unrelated people at 15 percent.
Each state also sets a threshold — an amount below which you owe nothing. In New Jersey, you owe no tax on the first $25,000 you inherit from a sibling, but amounts above that are taxed. In Pennsylvania, the threshold is $3,500 for siblings and $0 for unrelated people. These thresholds change infrequently, so check your state's tax department website for the current year.
State-by-state breakdown of rates and exemptions
| State | Spouse | Children | Siblings | Unrelated |
|---|---|---|---|---|
| Iowa | Exempt | Exempt | 5–15% | 15% |
| Kentucky | Exempt | Exempt | 4–16% | 6–16% |
| Maryland | Exempt | Exempt | 10% | 10% |
| Nebraska | Exempt | Exempt | 13–18% | 18% |
| New Jersey | Exempt | Exempt | 11–16% | 15–16% |
| Pennsylvania | Exempt | Exempt | 4.5–15% | 15% |
The rates shown are the maximum rates each state charges. Your actual rate depends on the size of the inheritance and, in some states, on how much you have already inherited from that same deceased person in the past. Some states also allow deductions for debts, funeral expenses, or other costs that reduce the taxable amount.
Maryland and Nebraska have the highest top rates for unrelated beneficiaries, while Pennsylvania has the lowest rate for siblings. Iowa and Kentucky offer the most generous exemptions for grandchildren, while Maryland taxes all non-spouse, non-child beneficiaries at a flat 10 percent regardless of relationship.
How inheritance tax differs from estate tax and income tax
Inheritance tax is paid by the person who receives the money. Estate tax is paid by the estate itself — the total value of everything the deceased left behind — before it is divided among heirs. Twelve states charge estate tax, and they are different from the six that charge inheritance tax. (Three states — Iowa, Kentucky, and Maryland — charge both.)
Neither inheritance tax nor estate tax applies to money you earn after you receive an inheritance. If you inherit $100,000 and invest it, the interest or dividends that account generates are subject to your state's income tax, just like any other income. The inheritance itself is not.
Federal estate tax applies only to very large estates — those worth more than $13.61 million in 2024 — so most people do not encounter it. State inheritance and estate taxes explore to much smaller amounts and affect far more people.
What happens if you inherit from someone in a different state
If you live in one of the six inheritance-tax states and inherit from someone who lived elsewhere, you still owe tax in your state. The tax is based on where you live, not where the deceased lived or where the property is located.
If you live outside the six inheritance-tax states and inherit from someone who lived in one of them, you owe nothing to that state. The deceased's state cannot tax you because you are not a resident there.
If the deceased owned real estate in a state different from where they lived, that state may have claims on the estate, but inheritance tax itself is still determined by the beneficiary's state of residence. The executor of the estate — usually a family member or attorney — handles these complications and reports the inheritance to the appropriate tax authorities.
How to report an inheritance on your state taxes
If you live in one of the six inheritance-tax states, you will receive a notice from the state tax department or from the estate's executor telling you that an inheritance has been reported. You do not file a separate form in most cases — the executor files the inheritance tax return on behalf of the estate and pays the tax from the estate's assets before distributing your share.
In some situations, you may need to file a return yourself. If the executor does not file, or if you inherit property that generates income after you receive it, contact your state's tax department for instructions. Each state publishes a guide on its website explaining the process and the forms required. Keep records of what you inherited, when you received it, and any tax paid, because you may need these records later if you sell inherited property and must calculate capital gains tax.
Frequently Asked Questions
Do I owe inheritance tax if I inherit from my parent?
No. All six states that charge inheritance tax exempt spouses and children from paying it. If you are the child of the deceased, you owe nothing to your state, regardless of how much you inherit.
What if I inherit from my sibling?
It depends on which state you live in. If you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, you may owe tax on what you inherit from a sibling. The rate ranges from 4 to 18 percent depending on the state and the amount. If you live elsewhere, you owe nothing.
Is inheritance tax the same as federal estate tax?
No. Federal estate tax applies only to very large estates and is paid by the estate itself. Inheritance tax is paid by the person receiving the money and applies to much smaller amounts. Most people never encounter federal estate tax, but inheritance tax affects anyone who inherits in the six states that charge it.
Can I avoid inheritance tax by moving to a different state?
Inheritance tax is based on where you live when you receive the inheritance, not where you lived when the person died. If you move to a state without inheritance tax before the inheritance is distributed, you may avoid the tax. However, moving solely to avoid inheritance tax is rarely practical, and the executor's timing is usually outside your control.
Do I owe income tax on money I inherit?
No. The inheritance itself is not subject to income tax. However, if the inherited money sits in an account that earns interest, or if you inherit a retirement account that generates distributions, those earnings are subject to income tax. The inheritance itself is tax-free.