What States Have an Inheritance Tax?

An inheritance tax is a state-level tax paid by an individual who receives money or property from a deceased person’s estate. The responsibility for payment falls on the beneficiary, not the estate. Tax rates are determined by the value of the assets inherited and the heir’s relationship to the decedent, with more distant relatives often facing higher rates.

The United States government does not impose a federal inheritance tax, as this tax is only levied by a small number of states. The specific rules and exemptions vary significantly depending on the state where the decedent lived or owned property.

Distinguishing Inheritance Tax from Estate Tax

The difference between an inheritance tax and an estate tax lies in who is responsible for payment. An estate tax is levied on the total value of a person’s assets and is paid by the estate before assets are distributed. The federal government imposes an estate tax, which in 2025 applies to estates exceeding $13.99 million.

In contrast, an inheritance tax is paid by the beneficiary after they receive their share of the assets. The tax is on the value of the specific property received, meaning beneficiaries of the same estate may owe different tax amounts based on their relationship to the decedent.

Twelve states and the District of Columbia also assess their own estate taxes, each with an exemption amount much lower than the federal threshold. Maryland is the only state that levies both a state estate tax and an inheritance tax.

States with an Inheritance Tax

As of 2025, five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Beneficiaries receiving property from residents of these states may be subject to this tax, regardless of where the beneficiary lives.

The list of states with an inheritance tax has recently changed. Iowa, which had an inheritance tax for many years, completed a gradual phase-out, officially eliminating its tax on January 1, 2025. This change reflects a broader trend of states moving away from this form of taxation.

Key Factors Determining Inheritance Tax Liability

The amount of inheritance tax owed is determined by the value of the inherited assets and the beneficiary’s relationship to the decedent. States establish different “classes” of beneficiaries based on familial ties to set exemption amounts and tax rates.

Surviving spouses are exempt from inheritance tax in all states that levy it. Other close relatives, like children and parents, also fall into classes that are often fully exempt. As the familial relationship becomes more distant, the tax treatment becomes less favorable. Siblings, nieces, and nephews are placed in classes with smaller exemptions and higher tax rates. Unrelated individuals are usually placed in a class with little to no exemption and the highest tax rates, which can range from 10% to 16%.

State-Specific Inheritance Tax Rules

Kentucky

Kentucky classifies beneficiaries into three groups:

• Class A includes surviving spouses, parents, children, grandchildren, and siblings, who are all exempt from inheritance tax.
• Class B includes nieces, nephews, daughters-in-law, sons-in-law, aunts, and uncles. They receive a $1,000 exemption, with amounts above that taxed at rates from 4% to 16%.
• Class C includes all other beneficiaries, such as cousins and unrelated individuals. They receive a $500 exemption, with tax rates on the remainder ranging from 6% to 16%.

Maryland

Maryland’s inheritance tax rate is a flat 10%. However, the tax does not apply to inheritances received by direct lineal heirs, such as a spouse, child, grandchild, parent, or grandparent. Siblings of the decedent are also exempt. The 10% tax applies to more distant relatives, such as nieces and nephews, as well as non-related beneficiaries on the value of their inheritance.

Nebraska

Nebraska categorizes beneficiaries into several classes:

• The surviving spouse is entirely exempt from the tax.
• Immediate relatives, including parents, grandparents, siblings, and children, receive a $100,000 exemption and are taxed at 1% on amounts above that.
• Remote relatives, such as aunts, uncles, nieces, and nephews, receive a $40,000 exemption and are taxed at 11% on the excess.
• All other beneficiaries receive a $25,000 exemption and face a 15% tax rate on the remainder.

New Jersey

New Jersey has the following beneficiary classes:

• Class A beneficiaries are exempt and include the surviving spouse, domestic partner, parents, grandparents, and children.
• Class C beneficiaries are siblings and the spouses or civil union partners of a child. They receive a $25,000 exemption, with amounts above that taxed at rates from 11% to 16%.
• Class D includes all other beneficiaries, like nieces, nephews, and non-relatives. Inheritances below $500 are not taxed. Amounts of $500 or more are taxed at 15% on the entire amount, with the rate increasing to 16% for amounts over $700,000.

Pennsylvania

Pennsylvania imposes its inheritance tax based on the heir’s relationship to the decedent:

• A 0% tax rate applies to transfers to a surviving spouse.
• A 0% tax rate also applies to property transferred from a deceased child 21 or younger to a parent.
• Direct heirs, such as children and grandchildren, are taxed at a 4.5% rate on their inherited assets.
• Siblings are subject to a 12% tax rate on their inherited assets.
• All other beneficiaries, including nieces and nephews, face a 15% tax rate.