Inheritance tax runs from 1% to 16% of what you receive, and in most of the country it’s 0% because only five states charge it: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.1Tax Foundation. Estate and Inheritance Taxes by State, 2025 How much inheritance tax you actually owe depends on two things: which state’s rules apply, and how closely you were related to the person who died. Surviving spouses pay nothing in all five states. Distant relatives and unrelated heirs pay the most.
Whether You Owe Anything at All
The tax follows the deceased, not you. If your relative lived in Pennsylvania and you live in Florida, Pennsylvania inheritance tax still applies to what you receive. If your relative lived in Florida and you live in Pennsylvania, no inheritance tax is due. Real estate is treated by its location, so property sitting in one of the five states can pull an out-of-state heir into that state’s tax.
Iowa used to be on this list. It finished a gradual phase-out and stopped collecting the tax entirely on January 1, 2025.2Justia. Iowa Code 450.98 – Tax Repealed Nebraska administers its tax at the county level rather than through a central state agency, which changes where you file but not what you owe.
One structural note before the numbers. Inheritance tax is charged to you, the recipient, after you receive the assets. Estate tax is different: it’s charged to the estate before anything is distributed. Maryland is the only state that imposes both, and it credits the inheritance tax paid against the estate tax bill so the same dollars aren’t taxed twice.3Maryland Comptroller. What You Need to Know About Maryland’s Estate Tax
Rates and Exemptions in Each State
Kentucky
Kentucky sorts heirs into three classes. Class A pays nothing: surviving spouse, parent, child, grandchild, brother, or sister. Class B is nieces, nephews, in-laws, aunts, and uncles, with a $1,000 exemption and rates from 4% to 16%. Class C is everyone else, including cousins and unrelated heirs, with a $500 exemption and rates from 6% to 16%.4Kentucky Department of Revenue. Inheritance and Estate Tax
Maryland
Maryland charges a flat 10% on collateral heirs — anyone outside the direct family line. The exempt list is broad: spouses, children, grandchildren, parents, grandparents, siblings, stepchildren, a child’s spouse, and registered domestic partners all pay 0%. Life insurance paid to a named beneficiary rather than to the estate is also exempt.5Register of Wills. Inheritance Tax
Nebraska
After a 2023 reform, Nebraska uses graduated exemptions. Parents, children, and siblings get a $100,000 exemption and pay 1% on anything above it. More distant relatives get smaller exemptions and higher rates, and unrelated heirs can pay up to 15%.1Tax Foundation. Estate and Inheritance Taxes by State, 2025 Returns are filed with the county court where the deceased lived.
New Jersey
New Jersey uses four beneficiary classes. Class A pays nothing and covers spouses, civil union and domestic partners, parents, grandparents, children, grandchildren, and stepchildren. Class C — siblings and a child’s spouse — gets a $25,000 exemption and pays 11% to 16%. Class D covers everyone not otherwise classified and pays 15% to 16% with no meaningful exemption. Charities and government entities sit in Class E and are fully exempt.6NJ.gov. Inheritance Tax Beneficiary Classes
Pennsylvania
Pennsylvania uses flat rates within each relationship category rather than graduated brackets. A surviving spouse pays 0%, and transfers from a child aged 21 or younger to a parent are also tax-free. Direct descendants and other lineal heirs pay 4.5%. Siblings pay 12%. Everyone else, other than charities and exempt institutions, pays 15%.7Pennsylvania Department of Revenue. Inheritance Tax There’s no general dollar-amount exemption, so the full value of the inheritance is taxed at the applicable rate.
What Gets Taxed and What Reduces the Bill
The tax generally applies to everything the deceased owned at death: real estate, bank accounts, investment accounts, vehicles, and personal belongings. Each asset is valued at its fair market value on the date of death, which sometimes requires an appraisal for real property, collectibles, or a closely held business.
Before the rate is applied, most states let you deduct several categories of cost from the taxable value:
- Reasonable funeral, burial, or cremation expenses.
- Debts the deceased owed at death — credit card balances, medical bills, mortgages, and other liabilities.8eCFR. 26 CFR 20.2053-1 – Deductions for Expenses, Indebtedness, and Taxes
- Administration expenses, including attorney, accountant, and appraiser fees paid to settle the estate.
Keep the receipts, loan payoff statements, and invoices. The more you can substantiate, the smaller the taxable base.
Two planning assumptions worth correcting. A revocable living trust helps assets skip probate but does not remove them from the inheritance tax base. Property held in joint tenancy with right of survivorship can still expose the deceased’s share to inheritance tax when the surviving co-owner isn’t a spouse. And large gifts made near the end of life may be pulled back into the taxable estate: federal law reaches back three years on certain transfers,9Office of the Law Revision Counsel. 26 USC 2035 – Adjustments for Certain Gifts Made Within 3 Years of Decedent’s Death and several inheritance tax states apply similar look-back rules.
The Federal Estate Tax Is Separate
The federal government does not collect an inheritance tax. It collects an estate tax, but only on very large estates. For 2026 the federal exemption is $15,000,000 per person, following the One, Big, Beautiful Bill Act signed on July 4, 2025.10Internal Revenue Service. What’s New – Estate and Gift Tax Estates below that threshold owe no federal estate tax. Above it, rates begin at 18% and top out at 40%. Transfers to a surviving spouse who is a U.S. citizen qualify for an unlimited marital deduction and pay no federal estate tax regardless of size. For most families the federal tax is not the concern; the state inheritance tax is what actually produces a bill.
Deadlines and the Pennsylvania Discount
Each state sets its own filing window, measured from the date of death:
- New Jersey: 8 months.11Legal Information Institute. NJ Admin Code 18:26-9.1 – Date Return Due
- Pennsylvania: payment becomes delinquent at 9 months.12Commonwealth of Pennsylvania. Make an Inheritance Tax Payment
- Nebraska: 12 months.13Nebraska Legislature. Nebraska Revised Statutes 77-2010
- Kentucky: 18 months.4Kentucky Department of Revenue. Inheritance and Estate Tax
Pennsylvania offers a 5% discount on the tax owed if you pay within three months of the death.12Commonwealth of Pennsylvania. Make an Inheritance Tax Payment On a $100,000 bill that’s $5,000 back for moving quickly, if the estate has enough cash on hand to pay early.
What Happens If You File Late
Every state that collects the tax charges penalties and interest on late returns. Nebraska is among the strictest: 5% per month or partial month on unpaid tax, capped at 25%, plus interest running from the original due date. A Nebraska court can waive the penalty for good cause.13Nebraska Legislature. Nebraska Revised Statutes 77-2010 Other states charge interest at varying rates and may add flat penalties.
If the inheritance is mostly illiquid — real estate, a family business, a partnership share — paying on time can be genuinely difficult. Contact the state revenue department directly to ask about hardship extensions or installment plans; several states will accommodate estates that lack the cash to pay in full by the deadline. Keep copies of the return, the appraisals, receipts for deductible expenses, and proof of payment. If the state later questions a valuation or claims a balance is unpaid, that file is your defense.