Which States Have Inheritance Tax: A State-by-State Guide
Inheritance tax is one of the least understood taxes in America—partly because it applies in so few places. Unlike the federal estate tax (which affects a small percentage of the wealthiest estates), inheritance tax is a state-level tax on the person receiving money or property from a deceased person's estate. The key difference: the person inheriting pays the tax, not the estate itself.
Only a handful of states collect inheritance tax, and the rules vary significantly by state, relationship to the deceased, and asset type. Understanding which states have it—and how it works—matters if you're an heir in one of those states or planning your own estate across state lines.
Which States Actually Have Inheritance Tax? 🏛️
As of now, six states impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
This is a small group, and it matters because most people who inherit won't face this tax at all. But if you live in or inherit from an estate in one of these states, the details matter.
Important note: State tax laws change. Rates, exemptions, and which assets are taxed can shift year to year. The information here reflects the general framework; the specifics of your situation require current research or professional guidance.
The Key Variables: What Determines Your Tax? 📊
Whether you owe inheritance tax—and how much—depends on several factors:
1. Your relationship to the deceased
Most inheritance tax states exempt spouses, minor children, and sometimes grandchildren or charitable organizations. Adult children, siblings, and unrelated beneficiaries typically face tax. In some states, the relationship determines not just whether you pay tax, but the rate you pay.
2. The value of what you inherit
There are often exemption thresholds—amounts below which no tax is owed. These vary by state and relationship. A small inheritance might fall entirely below the threshold.
3. The type of asset
Real estate, cash, stocks, life insurance, and retirement accounts may be treated differently. Some assets are fully taxable; others are partially or fully exempt.
4. Your residency at the time of inheritance
Some states only tax residents who inherit. Others tax all beneficiaries, even non-residents, on assets located in that state. Moving after inheritance can affect your tax liability in some cases.
How the Six States Compare
| State | Key Feature | Who Often Pays |
|---|---|---|
| Iowa | Exempts spouses, children, grandchildren; higher rates for unrelated heirs | Siblings, non-relatives, distant relations |
| Kentucky | Exempts spouses, children, grandchildren, parents; rates increase by class | Non-immediate family |
| Maryland | Exempts spouses, children, grandchildren; applies to all heirs above exemption | All other beneficiaries |
| Nebraska | Exempts spouses, children, grandchildren, parents; graduated rates | More distant relatives, non-relatives |
| New Jersey | Exempts spouses, children, grandchildren, parents; graduated rates | Siblings, aunts/uncles, non-relatives |
| Pennsylvania | Exempts spouses, children, grandchildren; flat rate applies to others | All non-exempt beneficiaries |
Note: Exemptions and rates change; verify current rules with each state's tax authority before filing.
Inheritance Tax vs. Estate Tax: Don't Confuse Them
Many people mix up inheritance tax and estate tax. They're different:
- Inheritance tax is paid by the beneficiary (the person who receives the money). Six states have it.
- Estate tax is paid by the estate itself before assets are distributed. Only about a dozen states plus the federal government impose it, and it generally applies only to larger estates.
You could live in a state with no inheritance tax but still owe federal estate tax if the estate is large enough. Conversely, you might owe inheritance tax even though there's no federal estate tax involved. These are separate systems.
What You Need to Know If You're an Heir 💡
If you inherit in one of the six inheritance tax states, here's what to evaluate with a tax professional:
- Your relationship to the deceased. Spouses and direct descendants often avoid tax entirely; others rarely do.
- The size of your inheritance. Small inheritances may fall below the state's exemption threshold.
- What you inherited. Some asset types are exempt; others are fully taxable.
- Your residency. Where you live and where the deceased lived can affect your obligation.
- Deadlines. Inheritance tax returns have filing deadlines (usually 8–12 months after death in states that have them), and missing them can mean penalties.
The Bigger Picture
For most Americans, inheritance tax isn't a factor—either because they don't live in one of the six states that have it, or because their inheritance falls below the threshold. But if you're in one of those states, or if you're planning an estate that spans multiple states, inheritance tax is worth understanding early.
The right move is to verify the current rules for your specific state, asset type, and relationship to the deceased. Tax laws shift, and professional guidance from a tax advisor or estate attorney in your state is the best way to understand your actual liability.
