State-Level Inheritance Tax
Updated October 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 $15 million exemption in 2026). There is no federal inheritance tax. However, five states impose their own inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Iowa: Repealed for deaths on or after January 1, 2025.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 no per-heir exemption (only a $3,500 family exemption for certain household members). New Jersey exempts Class A beneficiaries (spouse, children, grandchildren, parents, stepchildren) entirely; siblings (Class C) pay 11–16% above $25,000, and Class D heirs such as nieces, nephews and friends pay 15% on the first $700,000 and 16% above it, with no exemption. Nebraska taxes close relatives 1% above $100,000, and heirs under 22 owe nothing there.
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 | $15 million | 40% | The estate |
| State inheritance tax (6 states) | $0–$25,000 | 1–18% | The heir |
| State estate tax (12 states + DC) | $1M–$15M | 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 ($15 million per individual or $30 million per married couple in 2026, indexed for inflation from 2027; the TCJA drop that had been scheduled for 2026 was cancelled in July 2025). The rate schedule runs from 18% to 40%, but because the exemption is so large, every dollar above it is effectively taxed at 40%. 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 five states impose an inheritance tax in 2026: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania; Iowa's ended for deaths on or after January 1, 2025.
| 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 | 16% | A 2023 credit removed the old cliff; only the value above $2M is effectively taxed |
| Washington | Estate only | $3 million | 20% | Top rate back to 20% for deaths from July 1, 2026 (35% applied July 2025–June 2026) |
Several legal strategies can significantly reduce or eliminate estate and inheritance tax liability. Annual gift exclusions allow individuals to give up to $19,000 per recipient per year (2026) without gift tax implications or reducing the lifetime estate tax exemption — a couple with three children and six grandchildren can transfer $342,000 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 and was due to let it fall back to about $7 million per person after December 31, 2025. That drop never happened: the One Big Beautiful Bill Act (July 2025) set the exemption at $15 million per person for 2026, indexed for inflation from 2027 (IRS Rev. Proc. 2025-32), with no scheduled sunset. A married couple can shelter $30 million with portability, so a couple with a $20 million estate owes no federal estate tax. State estate and inheritance taxes are separate and often start far lower, which is why, for most families, the state of the person who died matters more than the federal rules.
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: $15M in 2026). 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