As if losing a loved one weren’t hard enough, you might also have to add “death tax” on the property that you receive from the estate — depending on where you live — in addition to all the other costs of death.
First off, what is inheritance tax? The answer varies based on the laws in each state, so consult an attorney or accountant in your state to find out exactly how your inheritance will be taxed.
Which States Have Inheritance Tax
Here are the six states with inheritance tax:
- New Jersey
Check out the following table to see state taxes on inheritance, and read on to find out what you need to know about inheritance tax so you can better understand complex death-related expenses.
|States With Inheritance Tax|
|State||Tax Rates||Exempt Assets||Exempt Beneficiaries||Due Date|
|Iowa||5% to 15%||Estates worth less than $25,000; Life insurance policies paid to named beneficiaries||Parents and lineal ancestors, spouses, children, stepchildren and lineal descendants||9 months after death|
|Kentucky||4% to 16%||Inheritances of $1,000 or less for nieces, nephews, children-in-law, aunts, uncles, great-grandchildren;|
Life insurance paid to the insured or to the estate
|Spouse, parents, children, grandchildren, siblings and half-siblings||18 months after death, 5% discount if paid within 9 months|
|Maryland||Up to 16%||Inheritances worth less than $1,000, Life insurance paid to a named beneficiary;|
Bequest of a primary residence to those listed as exempt beneficiaries — as well as a corporation, partnership and limited liability company; Up to $500 grave maintenance
|Parents, stepparents and other lineal ancestors, spouse, children and other lineal descendants, stepchildren and siblings||Determined by Registrar of Wills for the county where the decedent lived or owned property|
|Nebraska||1% to 18%||The First $10,000 to $40,000 per beneficiary, depending on the class of beneficiary; Life insurance paid to a named beneficiary under an employee benefit plan; Real property owned outside of Nebraska; Limited amounts under the homestead allowance;|
Certain personal property given to a surviving spouse and children
|Spouse||Within 12 months of death|
|New Jersey||11% to 16%||Inheritances worth less than $500; Life insurance paid to a named beneficiary;|
Certain state and federal government retirement plans
|Spouse, civil union partner, domestic partner, child or lineal descendants, parent or lineal ancestor, stepchildren; plus qualified charities, religious institutions, the State of New Jersey||8 months after the date of death|
|Pennsylvania||4.5% to 15%||Certain farmland;|
Retirement plans that cannot be accessed without penalty
|Surviving spouses, a child aged 21 or younger, charitable organizations, exempt institutions and government entities that are exempt from tax||9 months after death; 5% discount if paid within 3 months|
How Much Is Inheritance Tax?
Inheritance taxes vary from state to state, including which transfers are exempt from estate taxes entirely. For example, Pennsylvania exempts not only transfers to spouses and charities, but also children under 21 years old. So, if you’re 20 and your sibling is 22 when your parent dies, you wouldn’t owe any inheritance tax, but your sibling would.
Only Nebraska imposes an inheritance tax on all children, with certain exceptions for minors or dependents, with Iowa, Kentucky, Maryland and New Jersey exempting children entirely. All states exempt spouses for inheritance tax, and New Jersey also makes specific reference to certain civil union partners and domestic partners.
In addition, states often impose different tax rates depending on who is inheriting the money. For example, Iowa charges an inheritance tax between 5 and 10 percent for siblings and children-in-law, between 10 and 15 percent for more distant relatives, and 15 percent for for-profit entities. Nebraska has one of the widest ranges of inheritance tax rates, with immediate family members like children being charged just 1 percent on the portion of the inheritance exceeding $40,000, up to non-family members being charged 18 percent on the portion of the inheritance exceeding $10,000.
Property Subject to Inheritance Tax
You’ll also find differences among the states as to which property is subject to inheritance taxes. For example, in Nebraska, the first $40,000 that you inherit is exempt from inheritance tax. Pennsylvania exempts certain transfers of farmland and agricultural property. In addition, Maryland, Iowa, Kentucky, Nebraska, Pennsylvania and New Jersey exempt life insurance proceeds when they are paid to a named beneficiary. But, in Iowa for example, if the proceeds of the policy are paid to the estate, those proceeds are subject to tax. New Jersey also exempts certain payments from state and federal government retirement plans.
Inheritance Tax Law Changes
The federal government does not impose an inheritance tax, so the recent tax changes from the Trump administration did not affect the inheritance taxes imposed by the states. The IRS did, however, change the federal estate tax exemption from 2018 to 2019, from $11.18 million to $11.4 million. But, just because the inheritance taxes didn’t change in 2019 doesn’t mean state legislatures won’t change them going forward.
Inheritance Taxes vs. Estate Taxes
Because both are paid upon someone’s death, inheritance taxes and estate taxes are easy to confuse. The difference lies in who pays each tax: With an inheritance tax, the tax is paid by the people inheriting the money and the tax rate is often dependent on the beneficiary’s relationship to the decedent. So what is estate tax? With an estate tax, the tax is paid at the estate level prior to the money being distributed to the beneficiaries. Other than bequests to charities and a surviving spouse, which are generally exempt, estate taxes are the same regardless of who the beneficiary is.
States With Estate Taxes
Estate taxes are imposed in a handful of states, and those these taxes only apply to estates whose values are in the millions. If the estate is worth less than the state’s exemption limit, then no taxes are owed. As of 2019, 12 states and the District of Columbia have an estate tax, with Maryland imposing both an inheritance and an estate tax. Here are the states with estate tax:
- District of Columbia
- New York
- Rhode Island
The following table provides more details on the estate taxes imposed by each of these states.
|States With Estate Tax|
|State||Tax Rates||Exemption Limit||Due Date|
|Connecticut||7.2% to 12%||$2.6 million||9 months after the date of the decedent’s death|
|District of Columbia||Up to 16%||$5.6 million||9 months after the date of the decedent’s death|
|Hawaii||10% to 15.7%||$5.34 million||9 months after the date of the decedent’s death|
|Illinois||Up to 16%||$4 million||9 months after the date of the decedent’s death|
|Maine||8% to 12%||$5.7 million||9 months after the date of the decedent’s death|
|Maryland||Up to 16%||$5 million||9 months after the date of the decedent’s death|
|Massachusetts||Up to 16%||$1 million||9 months after the date of the decedent’s death|
|Minnesota||12% to 16%||$2.7 million in 2019; $3 million in 2020||9 months after the date of the decedent’s death|
|New York||3.06% to 16%||$5.74 million||9 months after the date of the decedent’s death|
|Oregon||10% to 16%||$1 million||9 months after the date of the decedent’s death|
|Rhode Island||Up to 16%||$1.5 million||9 months after the date of the decedent’s death|
|Washington||10% to 20%||$2.19 million||9 months after the date of the decedent’s death|
|Vermont||16%||$2.75 million||9 months after the date of the decedent’s death|
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- Watch: How to Legally Cheat Your Tax Bracket
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Gabrielle Olya contributed to the reporting for this article.