Inheritance Tax Rates and Rules for 2026

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Inheritance tax is a state-level tax that some beneficiaries must pay when they receive inherited assets — and only a few states still impose it in 2026. Unlike estate tax, which is paid by an estate before assets are distributed, inheritance tax is paid by the person who receives the inheritance.

For most Americans, this tax never comes into play because most states don’t levy it at all, according to the Tax Foundation.

What Is an Inheritance Tax and Who Pays It?

An inheritance tax is a tax imposed by certain states on people who receive money, property or other assets from someone who has died. The key point is that the beneficiary pays the tax, not the estate. If you inherit cash, a home, investments or business interests in a state that still has an inheritance tax, you may owe tax based on the value of what you received and your relationship to the deceased.

Only a small number of states still impose this tax. In most of the country, beneficiaries never encounter inheritance tax at all. Even in states that do impose it, many close family members qualify for full or partial exemptions.

How Inheritance Tax Works

Here are some of the primary characteristics of the inheritance tax:

• Paid by the beneficiary: The heir, not the estate, is responsible for the tax.
• Based on what you receive: Taxes apply to the value of your individual inheritance, not the estate’s total value.
• Rates vary by relationship: Close family members often pay little or nothing, while distant relatives and unrelated heirs usually pay more.

For example, if three siblings inherit equal portions of a parent’s estate, each sibling’s tax exposure is calculated separately based on their share and their relationship.

Inheritance Tax vs. Estate Tax

People often confuse inheritance tax with estate tax because both occur after someone dies. They are fundamentally different:

• Who pays: Inheritance tax is paid by heirs, while estate tax is paid by the estate.
• When: Inheritance tax applies when beneficiaries receive assets. Estate tax applies when the estate passes through probate and is over exemption thresholds.
• Scope: Estate tax can be federal plus state. Inheritance tax is only state.
• Tax base: Estate tax applies to the total estate value. Inheritance tax applies only to what each person receives.

Why people confuse the two: Both relate to wealth transfer at death but involve different taxpayers and triggers.

Which States Have an Inheritance Tax in 2026?

As of 2026, only five states still impose a true inheritance tax. Iowa fully phased out its inheritance tax in 2025, so it no longer applies.

States That Still Impose an Inheritance Tax

Each state sets its own exemption rules. In many cases, spouses and children are exempt, while siblings, extended family or unrelated beneficiaries may owe tax.

Maryland is the only state that still imposes both an estate tax and an inheritance tax, although credits prevent double taxation in many situations.

States With No Inheritance Tax

The vast majority of U.S. states don’t impose an inheritance tax, per the Tax Foundation. Many states also have no estate tax at all. That means most Americans can inherit assets without triggering any state-level inheritance tax liability.

Unless the deceased lived or owned property in one of the states listed above, inheritance tax usually isn’t an issue.

How Inheritance Tax Rates Are Determined

Inheritance tax rates depend primarily on three factors: your relationship to the deceased, the value of what you inherit and, in some cases, the type of asset involved.

Relationship to the Deceased

This is typically the most important factor. Most states, such as Pennsylvania, favor close family members:

• Spouses are almost always fully exempt.
• Children, parents and grandchildren often receive full or partial exemptions or very low rates.
• Siblings, nieces, nephews and cousins usually face moderate rates.
• Unrelated beneficiaries often pay the highest rates.

The logic is policy-driven — lawmakers want to protect family wealth transfers while still generating revenue from more distant transfers.

Value of the Inheritance

According to the Tax Foundation, some states use progressive brackets, meaning higher portions of the inheritance may be taxed at higher rates. Others apply flat rates once thresholds are exceeded.

For example, a beneficiary might pay no tax on the first portion of an inheritance but owe tax on amounts above a certain threshold. Larger inheritances can result in a higher inheritance tax bill.

Type of Asset Inherited

Most states treat inherited cash, securities and property similarly for tax purposes. However, certain assets — such as closely held businesses, farms or real estate — may have special valuation rules, deferral options or exemptions designed to prevent forced sales.

Why states structure rates this way: Inheritance taxes attempt to balance revenue generation with fairness, family protection and economic continuity.

Who Is Exempt From Inheritance Tax?

Many heirs never owe inheritance tax because of common exemptions written into state law:

• Surviving spouses are almost universally exempt.
• Immediate family members often qualify for full or partial exemptions.
• Charities and nonprofit organizations are typically exempt.

These exemptions significantly reduce how many people actually pay the tax.

Partial Exemptions and Reduced Rates

Some beneficiaries receive reduced rates instead of full exemptions. States may exempt the first portion of an inheritance or apply lower brackets depending on family relationship.

Will You Owe This?

If you’re inheriting from a spouse or parent, the odds are high that you will owe little to no inheritance tax, even in states that still impose it. More distant heirs should verify state rules carefully.

How and When Inheritance Tax Is Paid

Some estates may even pay the tax on behalf of beneficiaries as part of the estate settlement, depending on state rules and the will’s instructions.

Who Files the Return?

In most cases, the beneficiary is legally responsible for filing the inheritance tax return and paying any tax due. However, executors often assist by providing valuations, documentation and filing coordination.

Deadlines and Payment Timing

Deadlines vary by state but generally fall within several months to about 18 months after death. Late payments can trigger penalties and interest.

A typical sequence looks like this:

1. Estate assets are valued and distributed.
2. Beneficiaries confirm whether a state inheritance tax applies.
3. Tax is calculated based on relationship and value.
4. Payment and filing occur before the deadline.

Handling this early avoids unnecessary complications.

How To Reduce or Avoid Inheritance Tax — Legally

Inheritance tax planning usually happens before death — not afterward. Common strategies include:

• Lifetime gifting: Gradually transferring assets during life may reduce taxable inheritance exposure.
• Trust structures: Certain trusts can shift or reduce taxable transfers, depending on state law.
• Beneficiary designations: Retirement accounts and insurance policies often bypass probate and may receive favorable treatment.

These strategies are about legitimate estate planning, according to the American Bar Association — not aggressive tax avoidance.

When To Talk to a Professional

An estate planning attorney helps structure asset transfers properly, while a tax advisor ensures compliance and minimizes surprises. Professional guidance becomes especially valuable when large estates, business assets or multi-state property is involved.

For beneficiaries, knowing what planning steps were already taken can help clarify if inheritance tax is owed.

Quick Summary: Inheritance Tax Rules at a Glance

• Who pays: Beneficiaries who receive inherited assets.
• Where it applies: Only in a handful of states.
• Who’s exempt: Spouses and many immediate family members.
• Typical rates: Vary widely based on relationship and state.
• Next step: Check state rules or consult a professional if you expect an inheritance.

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