What States Have Inheritance Tax?
- If you inherit money or property, you may have to pay inheritance tax. Learn what states have inheritance tax, who's exempt and what percentage you'll pay.
If you receive an inheritance, it's essential to understand whether and how it will be taxed. Not all states impose inheritance taxes, but the rules in participating states can be complex. So, which states have inheritance tax, and how does the law vary from state to state?
What Is Inheritance Tax?
Inheritance tax is a death tax imposed by certain states. When inheritance tax applies, beneficiaries must pay tax on any assets they inherit after someone dies (the decedent).
The U.S. government doesn't impose inheritance taxes. You'll generally only pay inheritance tax if the deceased person lived in a state that imposes it or you inherit real estate located in an inheritance tax state.
Whether you need to pay inheritance tax and how much you'll pay partly depends on the value of your inheritance. For example, the state may only impose taxes on bequests over a certain value.
Your relationship to the deceased person also affects the rate you'll pay. No states levy inheritance taxes on surviving spouses, and close relatives generally pay less. People with no familial relationship to the deceased usually pay the highest rates.
What States Have Inheritance Tax?
Only the following six states impose inheritance taxes:
- New Jersey
However, Iowa recently opted to phase out inheritance tax, so you won't pay any tax on bequests if the decedent dies after January 1, 2025.
How Does Inheritance Tax Work in Each State?
Each participating state has different rules governing inheritance tax. Below, you can read about how inheritance tax works in the six participating states.
You must file your inheritance tax return in Iowa within 9 months following the decedent's death. Your payment is due on the same date. You can apply to the Department of Revenue for an extension if you need longer to file.
You'll only pay inheritance tax in Iowa if the estate's net value is $25,000 or more and the deceased person isn't your spouse or lineal relative. Therefore, you're exempt if you're the person's:
- Legal spouse
Iowa also exempts certain in-state nonprofit organizations.
If you're liable to pay Iowa inheritance tax, your rate depends on your relationship to the decedent. Siblings (including half-siblings), sons-in-law and daughters-in-law fall under Tax Rate B. You'll pay a flat rate of 4% up to $12,500. Rates then increase on a sliding scale, up to a maximum of $9,100 plus 8% for bequests worth $150,000 or more.
Tax Rate C includes aunts, uncles, cousins, foster children and unrelated people. You'll pay a flat rate of 8% up to $50,000. Meanwhile, the maximum rate is $8,800 plus 12% for bequests worth more than $100,000. Other tax rates include:
- Tax Rate D: Flat rate of 12%. For-profit organizations pay Tax Rate D.
- Tax Rate E: 8% for bequests worth more than $500. Nonprofit organizations in other states or territories pay this rate.
- Tax Rate F: Flat rate of 5%. The state applies Tax Rate F if they can't determine the beneficiary's identity.
Inheritance tax rates in Kentucky will reduce by 20% annually before they're abolished in January 2025.
Kentucky requires you to file your inheritance tax return and pay no later than 18 months after the decedent's death. You'll receive a 5% discount if you pay within 9 months, and you can choose to pay in 10 yearly installments if your inheritance is worth more than $5,000.
Kentucky has three inheritance tax classes:
- Class A: You're exempt from paying inheritance tax if you're in Class A. This covers spouses, parents, children, grandchildren and siblings (including half-siblings).
- Class B: All other direct relatives, excluding cousins, fall under Class C. This includes aunts, uncles, nieces, half-nieces, nephews, half-nephews and great-grandchildren. You won't pay tax on inheritances worth $1,000 or less, and rates are between 4% and 16% for inheritances exceeding this amount.
- Class C: Class C includes unrelated individuals and cousins. Beneficiaries in Class C receive a $500 exemption and then pay a tax rate of between 6% and 16% on the rest.
You must file your inheritance tax return in Maryland within 9 months of the decedent's death and pay any tax due. If you're liable to pay inheritance tax, you'll pay a flat rate of 10%. However, you're exempt from paying inheritance tax in the following circumstances:
- You're the decedent's spouse, sibling or lineal relative.
- You're the spouse of a lineal decedent.
- Your inheritance is worth less than $1,000.
- You're the deceased person's domestic partner, and you inherit their share of your jointly-owned property.
- The entire value of probate property is below $50,000.
- The value of the inheritance comes from Holocaust-related compensation.
Maryland-based nonprofit organizations don't pay inheritance tax.
You should file your inheritance tax return in Nebraska within 12 months of the decedent's death and pay any taxes due. The county can impose a penalty if you file or pay late.
Close relatives don't pay inheritance tax on the first $40,000 of their bequest. This amount will increase to $100,000 as of January 2023. Nebraska considers lineal relatives, siblings and their spouses to be close relatives. After that, the state applies a flat tax rate of 1%.
Distant relatives receive an exemption on the first $15,000 and then pay a flat rate of 13%. This includes aunts, uncles, nieces, nephews and their spouses or children. The exemption amount will increase to $40,000 in 2023, and the tax rate will reduce to 11%.
Any other beneficiaries receive an exemption on the first $10,000 and then pay a flat rate of 18%. The exemption amount will increase to $25,000 in 2023, and the rate will reduce to 15%.
You must file for and pay inheritance tax in New Jersey no later than 9 months after the decedent's death. New Jersey has four inheritance tax classes:
- Class A: Class A beneficiaries are exempt from paying inheritance tax. These include the decedent's spouse, civil union partner, domestic partner, lineal relatives and step-children.
- Class C: Class C beneficiaries don't pay tax on the first $25,000 and then pay a scaled rate between 11% and 15%. These beneficiaries include the decedent's siblings and their spouses or civil union partners.
- Class D: Class D beneficiaries pay 15% on the first $700,000 and 16% on any remaining balance. This class includes anyone not included in Class A, C or E.
- Class E: Class E beneficiaries are exempt from paying inheritance tax. This includes nonprofit organizations, such as charities, religious organizations and benevolent institutions.
You must file your inheritance tax return in Pennsylvania within 9 months of the decedent's death. The state provides a 5% discount if you pay within 3 months. Children of the decedent aged 21 or younger are exempt. Otherwise, you'll pay tax at the following rates:
- Lineal relatives: 4.5%
- Siblings: 12%
- All other beneficiaries: 15%
Charitable organizations and certain government institutions don't pay inheritance tax in Pennsylvania.