Taxes on an inheritance: what the heir pays
Most people who inherit in the United States owe no death tax at all. Whether one is due depends on the state where the deceased lived or owned real estate, and on how the heir was related. Enter a state, an amount and a relationship.
- States taxing heirs
- 5
- Heir’s own state
- irrelevant
- Spouse
- never taxed
- Federal tax
- paid by the estate
Pennsylvania inheritance tax for this heir
$24,000
Brothers and sisters, half-blood included. 12.0 % of what is received.
| Received | $200,000 |
| Tax | $24,000 |
| Kept by the heir | $176,000 |
Tax on the share received from a resident. A spouse pays none in any of the five states.
| State | Class | Tax |
|---|---|---|
| Kentucky | Class A | $0 |
| Maryland | Exempt | $0 |
| Nebraska | Class 1 | $1,000 |
| New Jersey | Class C | $19,250 |
| Pennsylvania | Brothers and sisters, half-blood included | $24,000 |
Compiled by Radif Partners · How we calculate · figures read on the state revenue department, the statute and irs.gov · not legal or tax advice
Two kinds of death tax exist in the United States, and only one of them is charged on the heir. The estate tax, federal above $15,000,000 and state-level in 13 jurisdictions, is computed on the whole estate and paid by the executor before anything is distributed, so the heir receives a share that has already borne it. The inheritance tax, in 5 states, is computed on each share. Which inheritance tax applies is decided by the deceased: the state where the deceased lived taxes the shares, and a state where the deceased owned real estate taxes that property; the heir's own state of residence plays no part. The relationship then sets the rate. On $200,000, a brother or sister pays $0 in Kentucky, $0 in Maryland, $1,000 in Nebraska, $19,250 in New Jersey, $24,000 in Pennsylvania. A spouse pays nothing anywhere, and life insurance paid to a named beneficiary is outside the inheritance tax in Pennsylvania, New Jersey, Kentucky and Maryland.
The deceased's state decides, not yours
New Jersey's Division of Taxation puts it in one line: where the beneficiaries lived is not a factor (New Jersey Division of Taxation). The same logic runs through the five inheritance tax states. A son in Arizona whose mother lived in Pennsylvania pays Pennsylvania's tax on his share; a nephew in Pennsylvania whose aunt lived in Arizona pays none, because Arizona has no inheritance tax, unless the aunt owned real estate in one of the five states. Moving to a state without the tax does nothing for the heir. Only the residence of the person who dies, and the location of the property, count.
What a share of $200,000 costs
| Heir | Kentucky | Maryland | Nebraska | New Jersey | Pennsylvania |
|---|---|---|---|---|---|
| Adult child | $0 | $0 | $1,000 | $0 | $9,000 |
| Brother or sister | $0 | $0 | $1,000 | $19,250 | $24,000 |
| Niece or nephew | $0 | $20,000 | $17,600 | $30,000 | $30,000 |
| Friend | $28,620 | $20,000 | $26,250 | $30,000 | $30,000 |
The table explains why an inheritance tax surprises families. Children rarely pay, so the tax goes unnoticed in most estates; it shows up when an aunt leaves her savings to nieces, when siblings inherit from a brother with no children, or when a friend or unmarried partner is named in a will. Outside the five states every cell of this table would be zero.
What one heir pays
New Jersey inheritance tax for this heir
$18,000
| Received | $120,000 |
| Tax | $18,000 |
| Kept by the heir | $102,000 |
One heir, two states
An heir can owe two inheritance taxes on one estate when the deceased lived in one taxing state and owned real estate in another. A New Jersey resident leaves a $1,000,000 estate, including a $300,000 cabin in Pennsylvania, to a friend. Pennsylvania taxes the cabin as a nonresident's real estate: $45,000. New Jersey taxes the rest of the share, without the out-of-state real estate: $105,000. Pennsylvania's own guidance confirms the split: for a nonresident, real and tangible property located in Pennsylvania is taxable and intangible property is not (REV-584).
Who actually pays
The tax is measured on the heir's share, but the paperwork usually sits with the estate. In Pennsylvania the return is filed by the personal representative named in the will or approved by the Register of Wills; only when there is none do the people receiving the property file and pay. In Nebraska the petitioner, often the personal representative but sometimes a trustee or the beneficiary of a transfer on death deed, has the tax determined by the county court. In Kentucky a beneficiary whose net tax exceeds $5,000 may elect to pay in 10 annual installments, and then becomes personally liable for the deferred tax (KRS 140.222). A beneficiary who receives property directly, outside probate, can therefore end up dealing with the tax personally.
What an heir does not pay
An heir never files the federal estate tax return; the executor does, and the tax is paid from the estate (federal estate tax exemption). Several kinds of property reach heirs without inheritance tax in the states that have one: life insurance paid to a named beneficiary in Pennsylvania, New Jersey, Kentucky and Maryland; property passing to a surviving spouse everywhere; most IRAs in Pennsylvania when the owner could not have withdrawn without penalty; and, in Nebraska, any interest passing to a person under 22, while close relatives there are taxed only above $100,000.
Income tax is a separate subject. The death taxes described on this site are not income taxes. For federal income tax, 26 U.S.C. 102 excludes from gross income the value of property received by inheritance, but not the income that property later produces, such as interest or dividends (26 U.S.C. 102). Pennsylvania's Department of Revenue states that inheritances are not taxable for Pennsylvania personal income tax purposes, with a reporting rule for people claiming its Tax Forgiveness credit (REV-584). For a particular case, such as an inherited retirement account, the IRS or a tax professional is the reference.
Before accepting a share
It helps to know three facts: where the deceased was domiciled, where any real estate is, and how the law of that state classifies the relationship. With those, the five state pages give the rate: Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania. The comparison of all five is on inheritance tax by state, and the difference with an estate tax on estate tax vs inheritance tax.