Inheritance Tax
A state-level tax paid by the beneficiary on assets received from a deceased person's estate.
What is Inheritance Tax?
Inheritance tax is levied by a small number of U.S. states on the value of assets a beneficiary receives from a deceased person's estate. Unlike estate tax, which is paid by the estate before distribution, inheritance tax is the responsibility of the person who inherits. As of 2024, six states impose an inheritance tax: Iowa (being phased out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Rates and exemptions vary by state and by the relationship between the decedent and beneficiary—close relatives such as spouses and children are often exempt or taxed at lower rates.
Example
A Pennsylvania resident inherits $200,000 from an aunt. Pennsylvania imposes a 15% inheritance tax on transfers to non-lineal heirs such as nieces and nephews. The heir owes $30,000 in state inheritance tax. Had the money come from a parent, the Pennsylvania rate would be 4.5%, saving $21,000.
Source: Pennsylvania Department of Revenue — Inheritance Tax