Inheritance Tax 2023
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An inheritance tax is a tax paid by a beneficiary when they receive an inheritance. An inheritance includes money and property. There is no federal inheritance tax in the United States, however, some states have an inheritance tax, estate tax, or both. You will need to pay an inheritance tax if you are a resident of these states, or if the decedent had property in those states that you are inheriting.
Do you have to pay taxes on inheritance?
Six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Since there is no federal inheritance tax, if you or the decedent are not a resident of one of these six states or the property being transferred is not located in one of these states, then you will not need to pay any inheritance tax.
If the value of the assets that you have inherited increases in the future, you may also need to pay tax on the capital gains when you sell the asset. Visit here to learn more about capital gains and to use our capital gains tax calculator.
Inheritance Tax by State
Summary of State Inheritance Tax Rates
| State | Tax Rate Ranges |
|---|---|
| New Jersey | 0% - 16% |
| Pennsylvania | 0% - 15% |
| Iowa | 0% - 15% |
| Kentucky | 0% - 16% |
| Nebraska | 0% - 18% |
| Maryland | 0% - 10% |
New Jersey Inheritance Tax
New Jersey’s transfer inheritance tax is deducted from distributions to beneficiaries by the executor of the estate. Prior to 2018, the estate would only pay New Jersey's inheritance tax or New Jersey's estate tax, whichever is higher. The removal of New Jersey's estate tax in 2018 means that New Jersey’s inheritance tax will always apply to bequests. The inheritance tax rate will vary depending on your beneficiary class.
| Beneficiary Class | Amount | Inheritance Tax Rate |
|---|---|---|
Class A
| Class A beneficiaries are exempt from the inheritance tax. | 0% |
Class C
| First $25,000 | 0% |
| Next $1,075,000 | 11% | |
| Next $300,000 | 13% | |
| Next $300,000 | 14% | |
| Over $1,700,000 | 16% | |
Class D
| First $700,000 | 15% |
| Over $700,000 | 16% | |
Class E
| Class E beneficiaries are exempt from the inheritance tax. | 0% |
Additional New Jersey Inheritance Tax Exemptions
Life insurance proceeds and transfers of less than $500 are exempt from the New Jersey inheritance tax. Payments, benefits, and annuities from the following sources are also exempt:
- New Jersey Public Employees Retirement System
- New Jersey Teachers' Pension and Annuity Fund
- New Jersey Police and Firemen's Retirement System
- Federal Civil Service Retirement benefits
- Retired Serviceman’s Family Protection Plan
- Survivor Benefit Plan (SBP)
When Are New Jersey Inheritance Tax Returns Due
New Jersey inheritance tax returns and tax payments are due within eight months of death.
If the decedent was a resident of New Jersey, the inheritance tax return must include the transfer of all tangible and intangible personal property.
If the decedent was not a resident of New Jersey, the return will only include the transfer of tangible property located in New Jersey. New Jersey will not charge inheritance taxes for intangible assets such as money in bank accounts or stock holdings, but these assets are still required to be reported in the inheritance tax return.
New Jersey Inheritance Tax Penalties
Unpaid inheritance tax will have interest applied at 10% per year, starting from eight months after the decedent's death.
For property located within New Jersey, the inheritance tax will become a lien on the property lasting 15 years until payment.
Pennsylvania Inheritance Tax
Inheritances are not considered as taxable income in Pennsylvania for income tax purposes. Instead, Pennsylvania charges an inheritance tax on the amount that is transferred to beneficiaries.
Pennsylvania Inheritance Tax Rates
| Beneficiary | Inheritance Tax Rate |
|---|---|
| Spouse | 0% |
| Parent (Only if the decedent is a child 21 years of age or younger) | 0% |
| Charitable Organizations and Government Entities | 0% |
| Direct Descendants or Linear Heirs | 4.5% |
| Sibling | 12% |
| All Other Heirs | 15% |
Who are direct descendants?
Direct descendants include children, grandchildren, adopted children, and step-children.
Who are linear heirs?
Linear heirs are grandparents, parents, and their children.
When Are Pennsylvania Inheritance Tax Returns Due?
Pennsylvania inheritance tax returns and tax payments are due within nine months of death.
If the inheritance tax is paid within three months of death, then there is a five percent discount on the tax due.
Pennsylvania Inheritance Tax Exemptions
Property jointly owned through marriage in the case of spouses is exempt from the inheritance tax.
The family exemption can only be claimed by members of the decedent’s household. The amount of the family exemption is $3,500. If the spouse is a resident of Pennsylvania, they can claim the Family Exemption. If the spouse does not claim the family exemption, the exemption can be claimed by a child of the decedent. If a child does not claim the family exemption, it can then be claimed by a parent of the decedent.
There are also exemptions for specific agricultural property, including plant and animal products, agricultural land, and forest reserves larger than ten acres.Iowa Inheritance Tax
In Iowa, it is the beneficiary that is responsible for paying the inheritance tax. The executor of the estate is responsible to make sure that the inheritance tax is paid by the beneficiary.
Iowa Inheritance Tax Rates
| Beneficiary | Inheritance Tax Rate | Transfer Amount |
|---|---|---|
Tax Rate A Spouse, Parents, Grandparents, Great-Grandparents, Children, Stepchildren, Grandchildren, Great-Grandchildren Other Lineal Descendants, including adopted descendants and lineal descendants of a stepchild | 0% | - |
Tax Rate B Brother, sister, son-in-law, daughter-in-law | 5% | First $12,500 |
| 6% | Next $12,500 | |
| 7% | Next $50,000 | |
| 8% | Next $25,000 | |
| 9% | Next $50,000 | |
| 10% | Over $150,000 | |
Tax Rate C Uncle, aunt, niece, nephew, foster child, cousin, brother-in-law, sister-in-law, and all other individuals | 10% | First $50,000 |
| 12% | Next $50,000 | |
| 15% | Over $100,000 | |
Tax Rate D Corporations and Organizations | 15% | - |
Tax Rate E Charitable, Educational, or Religious Organizations not under the Internal Revenue Code (IRC) | 10% | - |
Tax Rate F Unknown Heirs (Not Known Beneficiaries) | 5% | - |
Tax Rate G Charitable, Educational, or Religious Organizations under the Internal Revenue Code (IRC) | 0% | - |
Iowa Inheritance Tax Exemptions
If the decedent's estate is less than $25,000, the inheritance tax is zero.
Life insurance proceeds, annuities under an employee pension or retirement plan, and bequests for religious services up to $500 are exempt.
Gifts of $13,000 or less are also exempt.
When Are Iowa Inheritance Taxes Due?
Iowa inheritance taxes are due the last day of the ninth month after the decedent's death. An extension can be made, but interest will be added to the unpaid tax amount.
Kentucky Inheritance Tax
In Kentucky, real and personal property will be valued at its fair cash value on the decedent's date of death. Real estate transferred to a son-in-law or daughter-in-law may be valued at its agricultural value. Gifts made within three years of death will also be taxed. The inheritance tax rate will vary depending on your beneficiary class.
Kentucky Inheritance Tax Rates
| Beneficiary Class | Inheritance Tax Rate | Transfer Amount |
|---|---|---|
Class A
| 0% | - |
Class B
| ||
| 0% | First $1,000 | |
| 4% | Next $9,000 | |
| 5% | Next $10,000 | |
| 6% | Next $10,000 | |
| 8% | Next $15,000 | |
| 10% | Next $15,000 | |
| 12% | Next $40,000 | |
| 14% | Next $100,000 | |
| 16% | Over $200,000 | |
Class C
| 0% | First $500 |
| 6% | Next $500 | |
| 6% | Next $9,000 | |
| 8% | Next $10,000 | |
| 10% | Next $10,000 | |
| 12% | Next $15,000 | |
| 14% | Next $15,000 | |
| 16% | Next $40,000 | |
| 16% | Next $100,000 | |
| 16% | Over $200,000 |
Nebraska Inheritance Tax
Nebraska's inheritance tax applies to all property or interests in property located within Nebraska, as well as gifts given away within three years before death.
Nebraska Inheritance Tax Rates
| Beneficiary Class | Inheritance Tax Rate | Transfer Amount |
|---|---|---|
Level 1 Children, Adopted Children, Mutually Acknowledged Children, Grandchildren, Brothers, Sisters, Parents, Grandparents, and Spouses of any of these relatives | 0% | Amount Under $40,000 |
| 1% | Amount Over $40,000- | |
Level 2 Aunts, Uncles, nieces, nephews, and any spouses and lineal descendants of these relatives | 0% | Under $15,000 |
| 13% | Over $15,000 | |
Level 3 All other beneficiaries | 0% | Under $10,000 |
| 18% | Over $10,000 |
When Are Nebraska Inheritance Taxes Due?
Nebraska inheritance taxes are due 12 months after the decedent's death. Late payments would have interest accrued at 14% annually, with additional penalties of 5% per month up to 25% of the tax due.
The Nebraska inheritance tax is a lien on the property being transferred. The lien will either expire when the inheritance tax is paid, or ten years after death if the tax is not paid, or five years after a court determination.
Nebraska Inheritance Tax Exemptions
The following transfers are exempt from Nebraska's inheritance tax:
- Transfers to a spouse
- To the government
- For religious, charitable, or educational purposes
- Life insurance death benefits
- Gifts made within three years of death
Other exemptions to Nebraska’s inheritance tax are a $20,000 exemption for transfer to a spouse or $12,500 to the spouse and children if the spouse is still alive.
Funeral costs, medical costs within six months of death, the deceased's debts, administration, and court costs, and other legal costs can be deducted from the inheritance tax amount due.
Who is the Nebraska Inheritance Tax paid to?
While the Nebraska inheritance tax is a state tax, the inheritance tax goes towards counties. The county that the deceased resided in or where the property is located will receive the inheritance tax.
Maryland Inheritance Tax
Maryland is the only state to charge both an inheritance tax and an estate tax. This means that the estate would first have to pay a tax on their assets before any distributions are made. Beneficiaries would then have to pay an additional inheritance tax on the distributions that they receive.
However, the tax calculation depends on the amounts of each applicable transfer. The Maryland estate tax amount is the gross estate tax liability subtracted by the inheritance tax paid.
For example, if the amount that beneficiaries have to pay in inheritance taxes is more than the estate's tax liability, then no estate tax would be charged.
Maryland Inheritance Tax Rates
| Beneficiary | Inheritance Tax Rate |
|---|---|
| Child, Spouse, Parent, Grandparent, or other Lineal Descendants, Stepchild or Step-parent, Siblings, or Corporations | 0% |
| All other individuals | 10% |