Is Estate Tax the Same as Inheritance Tax?

Understanding the tax implications of wealth transfers after death can be complex. Estate tax and inheritance tax are two commonly discussed forms often confused but operate distinctly. This article clarifies the differences, providing a foundational understanding for individuals navigating post-death financial considerations.

Understanding Estate Tax

An estate tax is levied on the total value of a deceased person’s assets before distribution to heirs. This tax is imposed on the right to transfer property at death, with the deceased person’s estate responsible for payment. The gross estate includes assets such as cash, securities, real estate, life insurance, and business interests.

The federal government imposes an estate tax, primarily on very large estates. For 2025, the federal estate tax exemption is $13.99 million per individual; only estates exceeding this threshold are taxed. The tax applies only to the portion of the estate above this exemption, with federal rates ranging from 18% to 40%. Certain deductions, such as mortgages, debts, administration expenses, and property passing to a surviving spouse or qualified charities, reduce the gross estate to the net taxable estate.

Understanding Inheritance Tax

An inheritance tax is imposed on the right to receive property from a deceased person; the beneficiary pays it. Unlike an estate tax, which the estate pays, this tax is levied on the value of the specific inheritance received by a beneficiary.

Inheritance tax is solely imposed at the state level; there is no federal inheritance tax. Rates and exemptions often depend on the relationship between the beneficiary and the deceased. Spouses and lineal heirs (e.g., children or grandchildren) are often exempt or face lower tax rates compared to more distant relatives or unrelated beneficiaries.

Key Distinctions

The fundamental difference between estate tax and inheritance tax is who bears the tax burden. Estate tax is a levy on the deceased person’s entire estate, paid by the estate before assets are distributed to heirs. Conversely, inheritance tax is a tax on the individual beneficiary’s right to receive assets, paid by the person inheriting the property.

Another distinction is the taxable base. An estate tax considers the total value of the deceased’s gross estate above a certain exemption. An inheritance tax is calculated on the value of the specific assets or share received by each beneficiary. The taxable event also differs: estate tax applies to the transfer of wealth from the decedent, while inheritance tax applies to the beneficiary’s receipt of wealth. Estate tax can be imposed at both federal and state levels, while inheritance tax is exclusively a state-level tax.

State Specific Tax Application

While the federal government imposes an estate tax, many states also have their own estate or inheritance taxes. As of 2025, twelve states and the District of Columbia impose an estate tax. These include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington.

Five states levy an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is currently the only state that imposes both an estate tax and an inheritance tax. Most states do not impose either an estate tax or an inheritance tax. Due to variations in laws and exemption thresholds, individuals should research the specific regulations applicable to their circumstances.