The person who inherits the money or property usually pays the tax, not the estate
Inheritance tax is paid by the person who receives money or property from someone who has died. The tax is owed on the value of what you inherit above a certain threshold. However, the rules vary significantly by state — some states have inheritance tax, some do not, and the rates and thresholds differ widely. Federal estate tax is a separate matter and applies only to very large estates.
The key distinction is this: the beneficiary (the person inheriting) typically owes the tax, not the estate itself. However, in some states, the estate may pay the tax before distributing money to beneficiaries, which reduces what you receive. Understanding who pays depends on where you live and what type of property you are inheriting.
Key Takeaways
- Only six states currently have inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, each with different rates and exemptions.
- The person who inherits the property or money is responsible for paying inheritance tax in states that have it, though the estate may pay on their behalf.
- Spouses, children, and parents often pay lower rates or no tax at all, depending on the state and their relationship to the deceased.
- Federal estate tax applies only to estates worth more than $13.61 million (as of 2024), so most people do not owe federal tax.
- The executor of the estate or the state tax authority will notify you if you owe inheritance tax in your state.
Which states have inheritance tax and who pays it
Only six states currently impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. If you inherit money or property in any other state, you owe no state inheritance tax. The federal government does not tax most inheritances — only very large estates pay federal estate tax, which is a different tax entirely.
In the states that do have inheritance tax, the beneficiary is legally responsible for paying it. However, the way the tax gets paid varies. In some cases, the estate pays the tax before distributing your inheritance, which means you receive less money. In other cases, you receive your full inheritance and must pay the tax yourself by the important date. The executor of the estate (the person managing it) will tell you which applies in your situation.
Each state sets its own rates, exemptions, and rules about who pays. For example, in Pennsylvania, spouses and children under 21 are exempt from inheritance tax entirely. In Iowa, the tax rate depends on your relationship to the deceased — a spouse pays nothing, while a distant relative might pay up to 15 percent. You need to know the rules in the state where the person who died lived, because that is where the tax is owed.
How the relationship to the deceased affects what you pay
Your relationship to the person who died determines your tax rate and whether you owe anything at all. Most states give the lowest rates or full exemptions to spouses and direct descendants (children and grandchildren). More distant relatives and unrelated people pay higher rates.
In Maryland, for example, spouses and children pay no inheritance tax. In-laws, siblings, and more distant relatives pay 10 percent. In Kentucky, spouses are exempt, children pay 4 percent, and unrelated people pay 16 percent. The exact brackets vary by state, so you cannot assume that because you are a grandchild in one state, you will pay the same rate in another.
If you are inheriting from someone in a state with inheritance tax, the estate executor should provide you with the tax rate that applies to you based on your relationship. If they do not, you can contact the state tax authority directly — they have the information and can tell you what you owe.
Federal estate tax versus state inheritance tax
Federal estate tax and state inheritance tax are two separate taxes, and most people pay neither. Federal estate tax applies only to estates worth more than $13.61 million as of 2024 — this threshold is very high, and the vast majority of estates fall below it. If the estate is below that amount, no federal tax is owed, and the beneficiaries pay nothing to the federal government.
State inheritance tax, by contrast, applies to individual inheritances in the six states that have it, regardless of the total estate size. You can owe state inheritance tax even if the estate is small enough to avoid federal tax. The two taxes work independently — owing one does not mean you owe the other.
Some states have an estate tax instead of (or in addition to) an inheritance tax. Estate tax is paid by the estate itself before money is distributed to beneficiaries. This is different from inheritance tax, which is paid by the person who inherits. If you are inheriting in a state with an estate tax, the executor handles the payment, and you receive what is left after the tax is paid.
How to learn about you owe inheritance tax
The executor of the estate is responsible for notifying beneficiaries about inheritance tax obligations. They should tell you whether you owe tax, how much, and when it is due. If you do not hear from the executor, you can contact the tax authority in the state where the person who died lived.
Each of the six states with inheritance tax has a specific tax department or office that handles these cases. You can search online for "[state name] inheritance tax" to find the right office. When you contact them, have the deceased person's name, the date of death, and information about what you inherited. They can tell you whether you owe tax and what the important date is.
If the estate is being handled through probate court (the legal process for distributing property after death), the court documents will include information about inheritance tax. The executor or the probate attorney can explain what you owe and when payment is due. Most states give you several months to pay, but the exact important date varies.
What happens if you do not pay inheritance tax
If you owe inheritance tax and do not pay by the important date, the state can charge penalties and interest on the amount owed. The penalties vary by state but are typically a percentage of the unpaid tax, added each month the tax remains unpaid. Interest also accrues, making the total amount owed grow over time.
In some cases, the state tax authority can place a lien on property you inherited, meaning they have a legal claim against it until the tax is paid. This can prevent you from selling the property or refinancing a mortgage on it. If the tax remains unpaid for a long time, the state may take legal action to collect it.
If you cannot pay the full amount by the important date, contact the state tax authority in the state where the person died. Many states offer payment plans that allow you to pay the tax in installments over time. It is better to work out a plan than to ignore the bill, because penalties and interest will continue to grow.
Frequently Asked Questions
Do I have to pay inheritance tax if I live in a different state than the person who died?
You owe inheritance tax based on the state where the person who died lived, not where you live. If they lived in a state with inheritance tax, you owe it even if you live in a state without inheritance tax. If they lived in a state without inheritance tax, you owe nothing, regardless of where you live.
What if the person who died left a will that says the estate should pay the inheritance tax?
If the will directs the estate to pay the tax, then the executor will pay it from the estate before distributing your inheritance. You will receive less money, but you will not have to pay the tax yourself. The executor is legally required to follow the instructions in the will.
Is inheritance tax the same as income tax on inherited money?
No. Inheritance tax is a state tax on the value of what you inherit. Income tax does not explore to inherited money itself, though you may owe income tax on earnings from inherited property (such as interest or dividends). These are separate taxes with different rules.
Can I deduct inheritance tax from my income taxes?
No. Inheritance tax is not deductible on your federal income tax return. Some states may allow a deduction on state income taxes, but this varies. Check with a tax professional or your state tax authority if you want to know whether your state allows any deduction.
What if I inherit property in multiple states?
You follow the inheritance tax rules of each state where you inherited property. If you inherit real estate in Pennsylvania and money in Kentucky, you owe Pennsylvania's inheritance tax on the real estate and Kentucky's on the money. The executor or tax authorities in each state will tell you what you owe.