State-Level Inheritance Tax
Last reviewed: April 2026
An inheritance tax calculator estimates the state-level tax owed by beneficiaries who receive assets from a deceased person. Unlike the federal estate tax (paid by the estate), inheritance tax is paid by the recipient and varies by state and the relationship to the deceased.
These two terms are often confused but work very differently. An estate tax is paid by the deceased person's estate before assets are distributed. An inheritance tax is paid by the person who receives the inheritance. The federal government levies only an estate tax (with a ~$13.61 million exemption). There is no federal inheritance tax. However, six states impose their own inheritance tax: Iowa (being phased out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Iowa: Being phased out — fully repealed starting 2025. Kentucky: 4–16% on non-exempt beneficiaries. Maryland: 10% flat rate (also has a separate estate tax). Nebraska: 1–18% depending on relationship and amount. New Jersey: 11–16% on non-exempt beneficiaries. Pennsylvania: 0–15% based on relationship to the deceased.
In every state with an inheritance tax, surviving spouses are fully exempt. Most states also exempt or reduce rates for direct descendants (children, grandchildren) and parents. Siblings, nieces, nephews, and unrelated beneficiaries typically face the highest rates. This is fundamentally different from estate tax, which doesn't care who inherits — it taxes the total estate value.
Each state sets its own exemption thresholds. For example, Pennsylvania charges 0% for spouses, 4.5% for direct descendants, 12% for siblings, and 15% for everyone else — with a small $3,500 exemption. New Jersey exempts Class A beneficiaries (spouse, children, parents, grandparents) entirely but taxes Class D (unrelated) at 15–16% above $25,000.
Life insurance: Proceeds are generally exempt from inheritance tax. Trusts: Irrevocable trusts can sometimes avoid inheritance tax depending on state rules. Gifting during lifetime: Gifts made before death may not be subject to inheritance tax (varies by state). Relocation: The deceased's state of residence determines which state's inheritance tax applies. Consult an estate planning attorney for strategies specific to your state.
| Tax Type | Exemption (2026) | Top Rate | Who Pays |
|---|---|---|---|
| Federal estate tax | $13.61 million | 40% | The estate |
| State inheritance tax (6 states) | $0–$25,000 | 1–18% | The heir |
| State estate tax (12 states + DC) | $1M–$13.61M | 12–20% | The estate |
The federal estate tax and state inheritance taxes are distinct systems that often cause confusion. The federal estate tax is paid by the estate before distribution to beneficiaries — it applies to estates exceeding the exemption amount ($13.61 million per individual or $27.22 million per married couple in 2024, scheduled to drop to approximately $6-7 million in 2026 when the TCJA provisions sunset). The tax rate on amounts above the exemption ranges from 18-40%, with the top 40% rate applying to taxable estates exceeding $1 million above the exemption. State inheritance taxes are paid by the beneficiary based on the amount they receive and their relationship to the deceased — spouses are universally exempt, direct descendants (children, grandchildren) often receive higher exemptions or lower rates, and unrelated beneficiaries typically face the highest rates. Only six states currently impose an inheritance tax: Iowa (scheduled for repeal in 2025), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
| State | Tax Type | Exemption | Top Rate | Key Detail |
|---|---|---|---|---|
| Maryland | Both estate + inheritance | $5M estate / varies inheritance | 16% / 10% | Only state with both taxes |
| New Jersey | Inheritance only | Varies by relationship | 16% | Class D beneficiaries taxed from $0 |
| Pennsylvania | Inheritance only | None (except spouse) | 15% | Siblings taxed at 12%, lineal heirs 4.5% |
| Oregon | Estate only | $1 million | 16% | Lowest estate tax threshold in U.S. |
| Massachusetts | Estate only | $2 million (cliff) | 16% | Tax applies to entire estate, not just excess |
| Washington | Estate only | $2.193 million | 20% | Highest top estate tax rate in U.S. |
Several legal strategies can significantly reduce or eliminate estate and inheritance tax liability. Annual gift exclusions allow individuals to give up to $18,000 per recipient per year (2024) without gift tax implications or reducing the lifetime estate tax exemption — a couple with three children and six grandchildren can transfer $324,000 per year tax-free. Irrevocable life insurance trusts (ILITs) remove life insurance proceeds from the taxable estate — a $2 million policy inside an ILIT passes to beneficiaries completely free of estate tax. Charitable giving through charitable remainder trusts or donor-advised funds provides income tax deductions during life and removes assets from the taxable estate. Grantor Retained Annuity Trusts (GRATs) transfer appreciation on assets to beneficiaries while the grantor retains an annuity stream, potentially transferring millions with zero gift tax if structured properly. For married couples, proper use of both spouses' exemptions through bypass trusts or portability elections doubles the protected amount.
One of the most significant tax benefits associated with inheritance is the step-up in cost basis. When a person dies, the cost basis of their assets is "stepped up" to the fair market value at the date of death for income tax purposes. If a parent purchased stock for $50,000 that is worth $500,000 at death, the beneficiary inherits it with a $500,000 basis — if they sell it immediately, they owe zero capital gains tax on the $450,000 of appreciation that occurred during the parent's lifetime. This step-up applies to real estate, stocks, bonds, business interests, and most other capital assets. Without the step-up, the beneficiary would owe capital gains tax (0-20% federal, plus state taxes) on all unrealized appreciation. This provision creates a powerful estate planning strategy: holding highly appreciated assets until death rather than gifting them during life (gifts carry over the donor's original cost basis rather than receiving a step-up). For comprehensive estate planning calculations, see our Net Worth Calculator and Gift Tax Calculator.
The Tax Cuts and Jobs Act of 2017 roughly doubled the federal estate tax exemption from approximately $5.5 million to $11.18 million per person (indexed for inflation to $13.61 million in 2024). This provision is scheduled to sunset after December 31, 2025, reverting the exemption to approximately $6-7 million per person (adjusted for inflation). This means estates valued between $7 million and $13.6 million that are currently exempt could face estate tax of 40% on the excess amount starting in 2026. For a married couple with a $20 million estate, the potential tax exposure increases from $0 under current law to approximately $2.4-$2.8 million under the sunset provisions. Estate planning attorneys are advising high-net-worth individuals to use their full exemption before the sunset through irrevocable trusts, family limited partnerships, and large lifetime gifts — the IRS has confirmed that gifts made using the higher exemption will not be clawed back even if the exemption decreases, creating a narrow planning window. However, Congress could extend or make permanent the higher exemption, creating uncertainty that makes flexible estate planning strategies more important than ever.
See also: Estate Tax Calculator · Gift Tax Calculator · Probate Cost · Tax Calculator · Net Worth
→ Inheritance tax and estate tax are different taxes. Estate tax is paid by the estate before distribution (federal exemption: $13.99M in 2025). Inheritance tax is paid by the recipient after receiving assets. Maryland is the only state that imposes both. Most people will never owe federal estate tax, but state inheritance tax can apply to much smaller amounts.
→ Surviving spouses are exempt everywhere — but domestic partners may not be. All 6 inheritance tax states exempt surviving spouses. However, unmarried domestic partners are typically classified as "unrelated" and face the highest rates (up to 15–18%). This can result in a significant tax bill on a shared home. Consult an estate planning attorney for strategies.
→ Life insurance payable to a named beneficiary is usually exempt. Proceeds from a life insurance policy paid directly to a beneficiary generally bypass both estate and inheritance tax. However, if the policy is payable to the estate (rather than a named person), it becomes part of the taxable estate. Estimate coverage needs with our Life Insurance Calculator.
→ The step-up in basis eliminates capital gains on inherited assets. When you inherit stocks, real estate, or other appreciated assets, your cost basis resets to the fair market value at the date of death. This means decades of appreciation are never taxed as capital gains. This is separate from inheritance tax and applies federally. See our Estate Tax Calculator for federal estate tax modeling.
See also: Estate Tax Calculator · Life Insurance Calculator · Probate Cost Calculator · Net Worth Calculator