Understand how your inheritance will be taxed.
State inheritance tax rates range from 1% up to 16%
Inheritance tax usually applies when a deceased person lived or owned property in a state with inheritance tax
Surviving spouses are always exempt
Inheritance tax returns are usually due within one year and some states offer discounts for filing earlier
Inheritance tax is collected when a beneficiary inherits money, property, or other assets after someone dies. There is no federal inheritance tax and only six states levy the tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Inheritance tax usually applies if the decedent lived in one of those six states or if the property being passed on is located in one of the states, regardless of where the beneficiary lives.
Inheritance tax is distinct from estate tax, which is a tax on the value of someone’s estate after they die. Estate tax is paid by the estate and before any inheritances are passed to beneficiaries. Both inheritance and estate taxes are called death taxes.
If you have to pay inheritance tax, your tax rates depend on how closely related you were to the decedent and the total fair market value of your inheritance. Unrelated individuals usually pay the highest rates, while surviving spouses and some other relatives are exempt. Inheritances below a certain value may also be exempt. Each state sets its own tax rates, but most states use marginal tax rates, where only the value within certain thresholds is taxed at a given rate.
Below you can find a state-by-state overview of inheritance tax rates and filing deadlines, as well as a more detailed guide for each state.
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There is no federal inheritance tax and only six states have a state-level tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Below are the ranges of inheritance tax rates for each state in 2020 and 2021. Note that historical rates and tax laws may differ.
|State||Inheritance tax rate|
|Iowa||5% to 15%|
|Kentucky||4% to 16%|
|Nebraska||1% to 18%|
|New Jersey||11% to 16%|
|Pennsylvania||4.5% to 15%|
For more information on how to minimize or potentially avoid inheritance taxes, try this general guide to inheritance taxes.
Filing deadlines vary by state, but you generally have at least eight months to file an inheritance tax return. (New Jersey calls it a transfer inheritance tax return.) Each state has its own inheritance tax forms, which you can usually get through your state’s website. There is generally an option for beneficiaries to pay their own inheritance taxes or for the executor of an estate to collect inheritance tax payments from beneficiaries and then transmit those payments to the state.
Whenever you file your inheritance tax return is when you should pay your whole bill, though Kentucky does allow some taxpayers to pay in annual installments. Filing early will also earn you a 5% discount in Kentucky and Pennsylvania.
You can request a filing extension in most states, but extensions may only give you more time to file your return, with any taxes you owe still due by the original date. Paying your bill late will cause interest to accrue on the balance.
|State||Deadline to file a return||Discount||Extension available?|
|Iowa||Within 9 months||Not available||Yes, upon request|
|Kentucky||Within 18 months||5% if paid within 9 months||No, but payment plan may be available|
|Maryland||Within 9 months||Not available||Yes, upon request|
|Nebraska||Within 12 months||Not available||No|
|New Jersey||Within 8 months||Not available||Yes, up to 6 months|
|Pennsylvania||Within 9 months||5% if paid within 3 months||Yes|
It’s important to consider how much your inheritors will have to pay in taxes as part of your estate planning process.
Who has to pay inheritance tax in Iowa depends on the relationship of the inheritor to the decedent. Tax rates also differ based on that relationship, but you should file your inheritance tax return within nine months of the person’s death. If you need more time to file a return, you can request a tax filing extension.
You are exempt from Iowa’s inheritance tax if you are the deceased person’s surviving spouse, lineal ascendant (parent, grandparent, etc.), or lineal descendant (child, stepchild, grandchildren, etc.).
If you are the descendant’s brother, sister, half-brother, half-sister, son-in-law, or daughter-in-law, you will pay tax rates ranging from 5% on the first $12,500 of inheritance up to 10% on the value of inheritances worth more than $150,000.
All other individuals (related or unrelated) will pay between 10% and 15% of their inheritance. Corporations and other for-profit organizations will pay a flat 15% tax. Charitable, educational, and religious organizations (as defined by the IRS) are exempt from Iowa inheritance tax if they receive $500 or less, but they must pay a flat 10% if they receive an inheritance worth more than $500.
In Kentucky, you need to file an inheritance tax return when you receive an inheritance. There are separate forms for beneficiaries who do or do not have to pay inheritance taxes. Kentucky inheritance taxes should be filed within 18 months of the decedent’s death. You can receive a 5% discount on your taxes if you file within nine months.
You generally need to pay your bill all at once, but you can qualify to pay in 10 equal, annual installments if your inheritance tax liability is over $5,000. (You may have to pay interest in addition to your installment payments.) Kentucky does not provide filing extensions.
Kentucky tax law identifies three classes of beneficiaries, based on how closely related you were to the decedent. Class A individuals are exempt from taxation, while Class B and C beneficiaries must pay tax.
Class A: You are exempt from Kentucky inheritance tax if you are a decedent’s surviving spouse, parent, child, stepchild, grandchild, brother, sister, half-brother, or half-sister.
Tax rates generally range from 4% to 16% for individuals related to the decedent (Class B beneficiaries), and from 6% to 16% for unrelated individuals (Class C beneficiaries).
Class B: If you were the decedent’s aunt, uncle, niece, nephew, daughter-in-law, son-in-law, or great-grandchild, your first $1,000 of inheritance is exempt from inheritance tax. Then you will pay rates ranging from 4% on inheritances worth up to $10,000 and 16% on anything worth $200,000 or more. (Kentucky has eight marginal tax brackets: 4%, 5%, 6%, 8%, 10%, 12%, 14%, 16%.)
Class C: For all individuals not in classes A or B, the first $500 of inheritance is exempt and there are eight marginal tax brackets ranging from 6% up to 16%. Class C includes businesses and any educational, religious, or other institutions without tax-exempt status in Kentucky.
Maryland collects inheritance taxes on the value of property — personal property, real estate, and other assets — passed from a decedent to their beneficiaries. Tax applies whether the inheritance was passed via a last will and testament, trust, deed, or through intestate laws of succession.
Inheritance tax returns should be filed within nine months of the decedent’s death and they should be paid to your local Register of Wills office. You should contact that office with any questions or requests for filing extensions.
You are exempt from Maryland inheritance tax if you are the deceased person’s child, grandchild, stepchild, other lineal descendant, parent, stepparent, grandparent, brother, or sister. A corporation may also be exempt if it has certain of these individuals as stockholders.
Maryland levies a flat inheritance tax rate of 10%. All assets and all individuals subject to inheritance tax are subject to this rate. Also note that Maryland is the only state with a state-level inheritance tax and a state-level estate tax.
Nebraska’s inheritance tax applies to assets transferred from a beneficiary through a will or through intestacy laws. Beneficiaries must pay the tax if the decedent lived or owned property in Nebraska. An inheritance tax return is due within one year of the person’s death, and the state doesn’t offer filing extensions.
Surviving spouses are exempt from inheritance tax in Nebraska, but all others must pay tax. There are three possible inheritance tax rates in Nebraska, and which you pay depends on your relationship to the deceased person.
If you were the decedent’s parent, grandparent, sibling, child, other lineal descendant, or the spouse of one of those people, the first $40,000 you inherit is exempt but the value of your inheritance above $40,000 is taxed at 1%.
Assets passed to an aunt, uncle, niece, nephew, any lineal descendant of such persons or their spouses are taxed at 13% with the first $15,000 exempt.
All other beneficiaries will pay an inheritance tax rate of 18% with the first $10,000 of value exempt from taxation.
(Inheritance tax may also apply to life insurance death benefits, but you can avoid the tax by naming a beneficiary through your policy.)
New Jersey’s transfer inheritance tax is levied based on your relationship to the deceased person and the value of your inheritance. You generally need to pay it if the decedent lived in New Jersey, but you may have to pay if they didn’t live in the state but had property there. All transfer inheritance tax returns should be paid within eight months and sent to the Inheritance and Estate Tax Branch of the Department of the Treasury (in Trenton). This office can also offer a six-month tax filing extension upon request.
A decedent’s spouse, domestic partner, civil union partner, children (including adopted children), grandchildren, parents, grandparents, stepchildren, and mutually acknowledged children are all exempt from New Jersey inheritance tax. These are also the only individuals who do not need to file a transfer inheritance tax return.
Qualified charities, religious institutions, educational institutions, medical institutions, and some other non-profit organizations are exempt from inheritance tax. Beneficiaries who receive less than $500 are also exempt.
Any inheritors who are the deceased person’s brother, sister, son-in-law, daughter-in-law, or the civil union partner of their child will need to pay tax on an inheritance worth more than $25,000. Then there are four marginal tax brackets with rates ranging from 11% to 16%. The top tax rate applies to an inheritance worth more than $1.7 million.
All other beneficiaries will pay 15% on the first $700,000 they receive and 16% on the value over $700,000.
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Pennsylvania inheritance tax returns should be filed within nine months of someone’s death if you receive an inheritance that could be subject to tax. If you pay your tax bill within three months, you can receive a 5% discount. If you need more time to file your inheritance tax return, you can request an extension.
You are exempt from the Pennsylvania inheritance tax if you are a surviving spouse or minor child (21 or younger). Transfers from a minor child’s estate also aren’t taxed if they are bequeathed to the child’s parent.
You will pay a flat tax rate of 4.5% if you are a decedent’s lineal relative — grandfather, grandmother, father, mother, non-minor child, grandchild, un-remarried spouse, or widow of a child. Siblings of a decedent (not including stepsiblings) pay a tax worth 12% of their inherited assets. All other beneficiaries will pay a flat rate of 15% on their inheritance.
One way to potentially avoid inheritance tax for your beneficiaries is with an irrevocable trust.
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Derek is a personal finance editor at Policygenius in New York City, and an expert in taxes. He has been writing about estate planning, investing, and other personal finance topics since 2017. His work has been covered by Yahoo Finance, MSN, Business Insider, and CNBC.
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