Inheritance tax is a state-level tax paid by the person who receives property from a decedent, not by the estate itself. It is distinct from the federal estate tax and from state estate taxes, and it applies in only a handful of states. For residents of those states — and for non-residents who inherit property located there — the tax can take a meaningful bite, with top marginal rates exceeding 15 percent on certain transfers to distant relatives and non-relatives. Understanding which beneficiary class you fall into, what exemptions apply, and when the return is due will determine whether your inheritance arrives intact or with a six-figure tax bill attached.
Inheritance tax versus estate tax
The two taxes are commonly confused but operate on different taxpayers and at different levels of government. An estate tax is levied on the estate of the decedent before any assets are distributed — the executor files the return and pays the tax from estate funds. The federal estate tax is the best-known example, but 12 states and the District of Columbia also impose a separate state estate tax (Oregon, Washington, Minnesota, Illinois, New York, Vermont, Massachusetts, Rhode Island, Connecticut, Hawaii, Maryland, and the District of Columbia). Delaware and North Carolina previously had estate taxes but repealed them.
An inheritance tax, by contrast, is paid by each individual beneficiary who receives property, and the rate each beneficiary pays depends on their relationship to the decedent. Maryland is the only state that imposes both — an estate tax and an inheritance tax — meaning an estate above the Maryland estate tax threshold ($5 million in 2025) pays estate tax, and beneficiaries who are not close family members also pay inheritance tax on what they receive.
The six states that still levy it
As of January 1, 2025, six states impose an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa had been phasing out its tax for several years and formally repealed it effective January 1, 2025, meaning deaths occurring on or after that date generate no Iowa inheritance tax liability — though deaths before that date remain subject to the old rules and final returns are still being filed through 2025.
The six remaining states differ significantly in their rate structures, exemption amounts, and beneficiary classifications. Nebraska has the highest top rate at 18 percent on transfers to non-relatives, while Pennsylvania's top rate is 15 percent. Kentucky and New Jersey both top out at 16 percent. Maryland's top rate is 10 percent. These are marginal rates, applied to the amount above each exemption threshold, not flat percentages on the whole inheritance.
Class A, B, and C beneficiaries
Inheritance tax states classify beneficiaries by their relationship to the decedent, and the rate and exemption depend on the class. Although the exact labels vary by state, the three-tier system is widely used. Class A generally includes the surviving spouse, lineal descendants (children, grandchildren, parents, grandparents), and sometimes siblings. Class B typically includes more remote relatives — nieces, nephews, aunts, uncles, and sometimes sons-in-law and daughters-in-law. Class C (sometimes called "all other persons") includes everyone else: friends, unmarried partners, charities (in some states), and distant relatives.
Pennsylvania uses a slightly different classification: 0% for spouses and parents (Class A), 4.5% for children (also Class A under Pennsylvania's statute, but with a different rate than the spouse/parent group), 12% for siblings (Class B), and 15% for all other beneficiaries (Class C). New Jersey uses three classes too: Class A (spouse, domestic partner, civil union partner, child, parent, grandchild, grandparent) — exempt; Class C (sibling, daughter-in-law, son-in-law) — exempt on the first $25,000 then graduated up to 16%; and Class D (everyone else) — graduated up to 16% with no specific exemption.
State-by-state rates and exemptions
Kentucky (KRS Chapter 140): Class A beneficiaries (spouse, parent, child, grandchild, sibling) are fully exempt. Class B beneficiaries (niece, nephew, aunt, uncle, half-sibling, daughter-in-law, son-in-law) receive a $1,000 exemption and pay 4% to 16% on the balance. Class C (all others) pays 4% to 16% with a $500 exemption. The top rate applies to amounts above $60,000.
Nebraska has the steepest structure: immediate relatives (spouse, child, parent, sibling) are exempt; more remote relatives (niece, nephew, grandparent, aunt, uncle) receive a $40,000 exemption and pay 1% to 11%; and non-relatives receive a $25,000 exemption and pay 6% to 18% — the highest top rate in the country. Maryland exempts spouses, children, parents, grandparents, siblings, and charities; nieces, nephews, and other relatives pay 10% on amounts over $1,000, and non-relatives pay 10% on amounts over $500.
New Jersey: Class A is fully exempt. Class C beneficiaries receive a $25,000 exemption and pay graduated rates from 11% to 16% on the balance. Class D beneficiaries (everyone else) pay graduated rates from 15% to 16% with no separate exemption beyond the standard $700 credit. Pennsylvania: spouses and parents pay 0%; children age 21 or younger pay 0%; other children pay 4.5%; siblings pay 12%; all others pay 15%.
Why spouses and most children pay nothing
In every inheritance tax state, transfers to a surviving spouse are entirely exempt — the marital deduction is universal at the state level just as it is at the federal level. Transfers to children are exempt in Maryland, Nebraska, and New Jersey; exempt up to age 21 in Pennsylvania (with a 4.5% rate for adult children); and exempt for lineal descendants in Kentucky. Charitable beneficiaries are generally exempt in every state, mirroring the federal charitable deduction under IRC § 2055.
The practical consequence is that inheritance tax falls primarily on transfers to siblings, nieces, nephews, friends, and unmarried partners. An unmarried partner who inherits a $500,000 home in Pennsylvania pays $75,000 (15%); a married spouse inheriting the same home pays nothing. This disparity is one reason estate planners in inheritance tax states frequently recommend a revocable trust or lifetime gifting for clients in non-traditional relationships.
Filing requirements and deadlines
Inheritance tax returns are generally due nine months after the decedent's death, with a six-month extension available on request in most states. The return is filed by the personal representative or by each beneficiary directly, depending on the state. Penalties for late filing can be substantial: Pennsylvania imposes interest at 6% per year plus a 25% penalty on unpaid tax, while New Jersey charges 10% per year interest and a 5% per month late-filing penalty capped at 25%.
If you inherit property located in one of the six inheritance-tax states but live elsewhere, you may still owe tax — most states tax transfers of real property and tangible personal property located within their borders, regardless of the beneficiary's residence. Intangible property (stocks, bonds, bank accounts) is generally taxed based on the decedent's domicile, not the beneficiary's. For a deeper look at how this interacts with the federal estate tax exemption and portability, see our federal estate tax guide.
Last reviewed June 25, 2026. This article is informational and does not constitute legal, tax, or financial advice. Consult a qualified professional for guidance specific to your situation.