Six states currently tax inheritances, and the tax applies only to certain heirs
Six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — have inheritance taxes. These taxes are separate from federal estate tax and explore to money or property you receive from someone's estate. The tax rate and what gets taxed depend on your relationship to the person who died and the state where they lived.
The key difference from estate tax: the person who died's estate does not pay inheritance tax. You, the person receiving the inheritance, owe it. The tax is calculated on what you inherit, not on the total estate value. In most of these states, spouses and children pay nothing or a reduced rate, while more distant relatives and non-relatives pay higher rates.
If you inherited money or property and the person who died lived in one of these six states, you need to know whether your relationship to them triggers a tax bill and how much you owe.
Key Takeaways
- Only Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania have inheritance taxes; the other 44 states do not.
- Spouses are exempt from inheritance tax in all six states, and children are exempt or taxed at the lowest rate.
- The tax rate depends on your relationship to the person who died — closer relatives pay less or nothing, distant relatives and non-relatives pay more.
- You owe inheritance tax based on the state where the person who died lived, not where you live.
- The executor of the estate typically files the inheritance tax return and may withhold your inheritance until the tax is paid.
How inheritance tax rates vary by relationship to the deceased
All six states that have inheritance tax organize their rates into classes based on how closely you were related to the person who died. Class A (closest relatives) pays the lowest rate or nothing. Class B (more distant relatives) pays a higher rate. Class C (non-relatives) pays the highest rate.
Spouses are exempt in all six states — you owe no inheritance tax on what your spouse leaves you. Children and grandchildren are typically Class A and pay the lowest rate or nothing, depending on the state. Parents and grandparents are usually Class A as well. Siblings, aunts, uncles, and cousins fall into Class B and pay a higher rate. Anyone not related to the deceased — friends, unmarried partners, charities — falls into Class C and pays the highest rate.
The actual tax rate also depends on the dollar amount you inherit. Most states use a bracket system: you pay a percentage of the inheritance, and the percentage increases as the amount increases. For example, in one state you might pay 1% on the first $25,000 and 15% on amounts above $500,000. The exact brackets vary by state and by your relationship class.
State-by-state breakdown of inheritance tax rules
| State | Spouse | Children | Siblings | Non-relatives |
|---|---|---|---|---|
| Iowa | Exempt | Exempt | 5–15% | 10–15% |
| Kentucky | Exempt | Exempt | 4–16% | 6–16% |
| Maryland | Exempt | Exempt | 10% | 10% |
| Nebraska | Exempt | Exempt | 13–18% | 13–18% |
| New Jersey | Exempt | Exempt | 11–16% | 15–16% |
| Pennsylvania | Exempt | 4.5% | 12% | 15% |
Pennsylvania is the only state where children pay inheritance tax — 4.5% — though this is still lower than what siblings and non-relatives pay. All other states exempt children entirely. Maryland taxes siblings and non-relatives at the same rate (10%), while the other states charge non-relatives more than siblings.
Most states also set a threshold below which no tax is owed. For example, if you inherit $500 from a sibling in Iowa, you may owe nothing because the amount falls below the state's minimum threshold. These thresholds vary by state and by relationship class, so a small inheritance from a distant relative might trigger a tax while a larger one from a sibling does not.
What types of property are subject to inheritance tax
Inheritance tax applies to most types of property you receive: cash, bank accounts, stocks, bonds, real estate, vehicles, and personal property like jewelry or art. The tax is based on the fair market value of what you inherit at the time of death.
Some property is exempt. Life insurance proceeds payable directly to you (not to the estate) are usually exempt. Retirement accounts like IRAs and 401(k)s that name you as beneficiary are typically exempt. Property that passes by right of survivorship — such as a house owned jointly with right of survivorship — may be exempt or partially exempt depending on the state.
If the person who died owned property in multiple states, you may owe inheritance tax in the state where they lived, but not in other states where they owned property. The state of residence at death is what matters for inheritance tax purposes.
How the inheritance tax return gets filed and paid
The executor or personal representative of the estate is responsible for filing the inheritance tax return with the state. They must file within a set time frame — usually 8 to 12 months after the person's death, depending on the state. The executor calculates how much each heir owes based on what they inherit and their relationship to the deceased.
The executor typically withholds your inheritance until the inheritance tax is paid. This means you do not receive your full inheritance until the tax bill is settled. If the executor pays the tax from estate funds before distributing inheritances, the tax reduces what is available to distribute to all heirs.
If you receive an inheritance and the executor tells you that inheritance tax is owed, ask for a copy of the state's inheritance tax return so you can see how your tax was calculated. You have the right to review the calculation and object if you believe it is wrong. Some states allow you to pay the tax directly to the state rather than through the executor, though this is less common.
Inheritance tax versus estate tax and federal taxes
Inheritance tax is not the same as estate tax. Estate tax is paid by the estate itself before money is distributed to heirs. Only a few states have estate tax, and the federal government has a federal estate tax that applies only to very large estates (over $13.61 million in 2024, though this amount changes yearly). Inheritance tax is paid by you, the heir, on what you receive.
If the person who died lived in a state with both estate tax and inheritance tax, the estate may owe both. The estate tax is paid first from estate funds, and then inheritance tax is calculated on what remains. This can significantly reduce what heirs receive.
You may also owe federal income tax on certain inheritances. For example, if you inherit a retirement account and withdraw money from it, that withdrawal is taxable income. Inherited real estate that you sell may trigger capital gains tax. Inheritance tax is separate from these federal income tax obligations.
What to do if you inherited money in one of these six states
If you inherited property and the person who died lived in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, contact the executor of the estate and ask whether inheritance tax will be owed on your inheritance. Provide your relationship to the deceased (spouse, child, sibling, etc.) and the approximate value of what you are inheriting.
The executor should provide you with a copy of the inheritance tax return or a summary showing how much tax is owed. Review this carefully to make sure your relationship class is correct — if you are listed as a non-relative when you are actually a sibling, you will be taxed at the wrong rate.
If you believe the tax calculation is wrong, contact the state's tax department directly. Each of the six states has a specific office that handles inheritance tax questions. You can request a copy of the state's inheritance tax forms and instructions to understand how the calculation was done.
Frequently Asked Questions
Do I owe inheritance tax if I live in a state that does not have inheritance tax?
No. Inheritance tax is based on where the person who died lived, not where you live. If they lived in a state without inheritance tax, you owe nothing to that state, even if you live in a state that does have inheritance tax. However, you may owe federal income tax on certain types of inheritances.
Is inheritance tax the same as the federal estate tax?
No. Inheritance tax is a state tax paid by heirs on what they receive. Federal estate tax is paid by the estate itself and applies only to very large estates. A state can have inheritance tax, estate tax, both, or neither. They are separate taxes with different rules.
What if the person who died had property in multiple states?
You owe inheritance tax only in the state where the person lived at the time of death. If they owned real estate in another state, you do not owe that state's inheritance tax on it, though you may owe property tax or other taxes related to owning property there.
Can I reduce my inheritance tax bill?
The tax rate is set by law and depends on your relationship to the deceased and the amount you inherit — you cannot change it. However, some inheritances are exempt (like life insurance or retirement accounts that name you as beneficiary), so make sure the executor has identified all exempt property before calculating your tax.
What happens if the executor does not file the inheritance tax return?
The state can assess penalties and interest on unpaid taxes. The executor is legally responsible for filing, so if they fail to do so, heirs may not receive their inheritance until the return is filed and taxes are paid. If you are concerned the executor is not handling this, contact the state's tax department or an attorney.