What Is Inheritance Tax? States, Rates, and Who Pays

Inheritance tax is a state-level tax that a beneficiary pays on money or property received from someone who has died. Only five states impose it: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. What you owe depends on two things: the value of what you personally receive, and how closely you were related to the person who died. Close family members are usually exempt. More distant relatives, friends, and unmarried partners often are not.

How It Differs From the Estate Tax

The two taxes are easy to mix up because both involve death and money, but they work differently. An estate tax is paid by the estate itself before anything is distributed; the executor calculates the bill and pays it out of the deceased person’s assets. Inheritance tax is owed by each beneficiary individually, on their share.

The federal government imposes only an estate tax. For 2026, the federal estate tax exemption is $15,000,000 per person, so estates below that threshold owe no federal estate tax.1Internal Revenue Service. What’s New – Estate and Gift Tax State inheritance taxes operate independently. A beneficiary in Pennsylvania or Kentucky can owe state inheritance tax on a modest bequest even when the estate is far too small to trigger any federal obligation.

Maryland is the only state that imposes both an estate tax and an inheritance tax, meaning an estate there can be taxed twice: once on the overall value, and again as individual beneficiaries receive their shares.

The Five States That Charge It

As of 2026, the states with an inheritance tax are:

The decedent’s state controls. If the person who died lived in one of these five states, the inheritance is potentially taxable no matter where the beneficiary lives.

What You Actually Owe Depends on Your Relationship

Every inheritance tax state sorts beneficiaries into classes by relationship. Each class has its own exemption amount and rate. Surviving spouses are exempt everywhere. Beyond that, the details vary a lot.

Pennsylvania

Pennsylvania uses flat rates with no graduated brackets and no general exemption for non-spouse beneficiaries. The tax applies to the first dollar.7Commonwealth of Pennsylvania. Inheritance Tax – Department of Revenue

  • 0% for a surviving spouse, or a parent inheriting from a child aged 21 or younger
  • 4.5% for direct descendants and other lineal heirs
  • 12% for siblings
  • 15% for everyone else, including friends, nieces, nephews, and unmarried partners

Charities and government entities are exempt.

Kentucky

Kentucky fully exempts Class A beneficiaries, a broad group that includes spouses, parents, children, grandchildren, and siblings. The tax only reaches more distant relatives and unrelated individuals:8Kentucky Department of Revenue. Inheritance and Estate Tax

  • Class B (nieces, nephews, in-laws, aunts, uncles, great-grandchildren): $1,000 exemption, graduated rates from 4% to 16%
  • Class C (everyone else): $500 exemption, graduated rates from 6% to 16%

Kentucky and New Jersey have the highest top inheritance tax rate in the country at 16%.

New Jersey

New Jersey exempts Class A beneficiaries (spouses, children, grandchildren, stepchildren, parents) and Class E beneficiaries (charities). Taxable classes are:

  • Class C (siblings, half-siblings, spouses of the decedent’s children): $25,000 exemption, rates from 11% to 16%
  • Class D (everyone else, including friends, cousins, and unmarried partners): $500 exemption, rates of 15% to 16%

Maryland

Maryland charges a single flat 10% rate on non-exempt beneficiaries. The exempt list is generous: spouses, parents, grandparents, children, grandchildren, spouses of children and grandchildren, and siblings all pay nothing.9Justia. Maryland Tax – General Code Section 7-203 In practice, Maryland’s inheritance tax mainly hits nieces, nephews, friends, and unmarried partners. Life insurance proceeds paid to a named beneficiary rather than to the estate are also exempt.

Nebraska

Nebraska’s inheritance tax is administered at the county level rather than by a state agency. For deaths on or after January 1, 2023:4Nebraska Legislature. Nebraska Revised Statutes 77-2004 – Inheritance Tax Rate

  • Close relatives (spouse, parents, children, grandchildren, siblings): 1% on amounts over $100,000
  • Remote relatives (aunts, uncles, nieces, nephews): 11% on amounts over $40,000
  • Everyone else: 15% on amounts over $25,000

Nebraska is the only inheritance tax state that taxes close relatives above a threshold rather than exempting them entirely. A child inheriting $200,000 would owe 1% on $100,000, or $1,000.

Deductions That Lower the Taxable Amount

Inheritance tax applies to the net value of what you receive, not the gross figure. Funeral expenses, including burial costs, a headstone, and transportation of the body, are generally deductible.10eCFR. 26 CFR 20.2053-2 – Deduction for Funeral Expenses Debts the decedent owed at death, such as an outstanding mortgage, credit card balances, or unpaid medical bills, also reduce the taxable value.11Internal Revenue Service. Publication 559 – Survivors, Executors, and Administrators Administrative costs like attorney fees and appraisal charges may qualify as well, though specifics vary by state.

If you inherit a house with a $300,000 fair market value carrying a $120,000 mortgage, you are generally taxed on the $180,000 equity, not the full $300,000. Accurate valuations matter here. An appraisal that overstates real estate value costs real money in unnecessary tax.

Who Actually Writes the Check

The default rule is that each beneficiary owes the tax on what they personally receive. Inherit $50,000 from an uncle in New Jersey as a Class D beneficiary, and you owe the tax, not the estate and not the other beneficiaries.

Many wills include a tax apportionment clause directing the estate to pay inheritance taxes on behalf of all beneficiaries before distributing assets. When the will says this, the executor pays the tax out of estate funds and beneficiaries receive their shares net of tax. If the will is silent, the beneficiary bears the cost personally. That clause is one of the first things worth checking when you learn you are inheriting from someone in an inheritance tax state.

If a beneficiary fails to pay, the state can place a lien on inherited property or pursue other collection actions. The liability attaches when you receive the assets.

Deadlines and Early-Payment Discounts

Each state sets its own filing deadline:

Two states reward early payment. Pennsylvania offers a 5% discount on the tax if paid within three months of the date of death. Kentucky offers a 5% discount if paid within nine months. On a $50,000 tax bill, that discount saves $2,500, worth moving quickly for if the estate has the liquidity.

Missing the deadline triggers interest and penalties. Annual interest rates typically run from 6% to 12% on unpaid balances and accumulate monthly. Some states add a separate late-filing penalty on top of interest.

What You Need to File

Filing requires records that show the estate’s value as of the date of death. That date is the valuation date, not the day you file or the day you receive the property. You will typically need:

  • A formal appraisal of any land or homes reflecting fair market value on the date of death
  • Bank, brokerage, and retirement account statements as of the date of death
  • The death certificate
  • Social Security numbers for the decedent and every beneficiary listed on the return
  • Documentation of outstanding debts, including mortgages and medical bills, that reduce the taxable value
  • The will or trust documents to verify each beneficiary’s share and relationship class

Each state has its own forms. Pennsylvania uses Form REV-1500, available through the state’s Department of Revenue.14Pennsylvania Department of Revenue. REV-1500 Pennsylvania Inheritance Tax Return – Resident Decedent Instructions Nebraska is unusual in that the return is filed with the county court in the county where the decedent owned property, not with a state agency.13Nebraska Legislature. Nebraska Revised Statutes 77-2113 – Filings Required

Out-of-State Property Can Still Trigger the Tax

Living outside an inheritance tax state does not automatically protect your heirs if you own real estate or tangible property inside one. States generally assert taxing authority over property physically located within their borders, regardless of where the owner lived. If a California resident dies owning a rental property in New Jersey, the beneficiaries of that property may owe New Jersey inheritance tax on its value. A vacation home in Pennsylvania can trigger Pennsylvania inheritance tax even if the decedent was a Florida resident.

The takeaway for most people expecting an inheritance from one of the five states: your relationship to the decedent matters more than the dollar amount. Spouses and direct descendants are protected in every one of them. Once you get beyond that inner circle, the tax can take a real bite, especially in Pennsylvania and New Jersey where rates for distant relatives and friends reach 15% or 16% with minimal exemptions.