Only six states charge inheritance tax, and it applies only to certain relatives

Inheritance tax is a state tax on money or property you receive from someone who has died. Six states collect it: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The tax is paid by the person who inherits, not by the estate itself. The amount you owe depends on your relationship to the person who died, the value of what you inherit, and the state's tax brackets.

Federal estate tax is separate and applies only to very large estates — those worth more than $13.61 million in 2024. Most people never encounter it. Inheritance tax, by contrast, can affect ordinary inheritances in the six states that have it, though many heirs pay nothing because of exemptions based on family relationship.

If you live in or inherit from someone in one of these six states, you need to know whether the inheritance is taxable and what rate applies to you. The rules differ sharply by state and by how closely you were related to the person who died.

Key Takeaways

  • Only Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania charge inheritance tax; the other 44 states do not.
  • Spouses, parents, and children are usually exempt from inheritance tax in all six states that have it.
  • Grandchildren, siblings, and unrelated people pay tax on larger inheritances, with rates and thresholds varying by state.
  • The tax is paid by the heir, not the estate, and is calculated on the net value of what that specific person receives.

Iowa inheritance tax: rates and exemptions

Iowa taxes inheritances at rates between 1 and 16 percent, depending on your relationship to the person who died and the size of the inheritance. Spouses, children, parents, and grandchildren are exempt — they pay nothing. Siblings pay tax only on amounts over $25,000. All other relatives and unrelated people pay tax on amounts over $500.

The tax brackets in Iowa are steep for distant relatives. A sibling inheriting $100,000 would owe tax on $75,000. An unrelated person inheriting the same amount would owe tax on $99,500. The rate climbs with the size of the inheritance, reaching 16 percent on amounts over $500,000 for non-relatives.

Kentucky, Maryland, and Nebraska: who pays and who doesn't

Kentucky exempts spouses, children, parents, and grandparents. Grandchildren, siblings, and more distant relatives pay tax on inheritances over $1,000. The rate ranges from 4 to 16 percent depending on the relationship and the amount inherited.

Maryland exempts spouses and lineal descendants (children, grandchildren, and further down the line). All other heirs — siblings, aunts, uncles, cousins, and unrelated people — pay tax on amounts over $1,000. Rates run from 1 to 10 percent.

Nebraska exempts spouses, children, parents, grandparents, and grandchildren. Siblings and more distant relatives pay tax on amounts over $40,000. The rate is a flat 1 percent for most distant relatives, though it can reach 18 percent for unrelated people on very large inheritances.

New Jersey and Pennsylvania: the strictest rules

New Jersey exempts spouses, children, parents, and grandparents. Grandchildren pay tax on amounts over $25,000 at a 12 percent rate. Siblings and all other heirs pay on amounts over $500, with rates ranging from 11 to 16 percent depending on the relationship and size of the inheritance.

Pennsylvania exempts spouses, parents, and children. Grandchildren pay 4.5 percent tax on amounts over $3,500. Siblings pay 12 percent on amounts over $3,500. All other heirs pay 15 percent on amounts over $3,500. Pennsylvania's rules are simpler than most states' — the rate depends only on your relationship, not on the size of the inheritance.

How inheritance tax is calculated and paid

The tax is calculated on the net value of what you inherit — meaning the value after debts, funeral costs, and estate administration expenses are subtracted. If the estate owes money, those debts reduce the taxable amount you receive.

The person managing the estate (the executor or administrator) is usually responsible for filing the inheritance tax return and collecting the tax from heirs. In some cases, the heir pays directly to the state. The important date to file and pay varies by state but is typically within nine months of the death.

If you inherit property rather than cash, you may need to sell it to pay the tax, or the executor may do so on behalf of the estate. Some states allow payment plans for large taxes owed.

What triggers inheritance tax and what doesn't

Inheritances from a will or trust are taxable if you live in or the deceased lived in one of the six states. Inheritances that pass outside probate — such as life insurance proceeds, retirement accounts with a named beneficiary, or property held in joint tenancy — may still be taxable in some states, depending on how the account or property was titled.

Gifts made while someone is alive are not subject to inheritance tax, even if they are large. Only transfers that occur at death are taxed. This is an important distinction: a parent can give a child $100,000 while alive with no inheritance tax consequence, but the same amount inherited after death may be taxable depending on the state and the relationship.

What to do if you inherit in one of these states

If you inherit from someone who lived in or owned property in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, ask the executor or estate attorney whether the inheritance is taxable in that state. Provide your relationship to the person who died and the value of what you are receiving.

If you are exempt (spouse, parent, or child in most states), you will owe nothing. If you are not exempt, the executor will calculate the tax owed and either deduct it from your inheritance or bill you directly. Keep records of the inheritance and the tax paid, as you may need them for your own tax returns or future reference.

If the estate is small or you are a close relative, inheritance tax may not explore at all. But if you are inheriting a substantial amount as a sibling or more distant relative, the tax can be significant — sometimes 10 to 16 percent of what you receive.

Frequently Asked Questions

Do I have to pay inheritance tax if I live in a state that doesn't have it?

No. Inheritance tax is based on where the person who died lived or owned property, not where you live. If the deceased lived in a state without inheritance tax, you owe nothing to that state. However, if they lived in one of the six states that has it, you may owe tax even if you live elsewhere.

Is inheritance tax the same as estate tax?

No. Estate tax is a federal tax on the total value of an estate before it is divided among heirs. Inheritance tax is a state tax on what individual heirs receive. Most estates are too small to owe federal estate tax. Inheritance tax can explore to much smaller estates.

Can I reduce the inheritance tax I owe?

The main way to reduce it is through your relationship to the deceased. Spouses and children are exempt in all six states. If you are a more distant relative, you cannot reduce the tax rate, but the executor may be able to structure the inheritance to minimize it — for example, by using trusts or other legal tools. An estate attorney in that state can advise on this.

What if the executor doesn't pay the inheritance tax?

The state can pursue the heir for the unpaid tax, including penalties and interest. It is the executor's legal duty to pay it. If you suspect the executor is not handling it correctly, contact the state tax department or an attorney in that state.

Does inheritance tax explore to retirement accounts or life insurance?

It depends on the state and how the account is titled. In some states, life insurance proceeds and retirement accounts with a named beneficiary are exempt. In others, they are taxable. Ask the executor or the state tax department about your specific inheritance.