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Money and Tax in Plain Terms

Plain-language edition

A manual that explains how money, tax and accounts work in plain terms. It describes mechanisms and history only, and states no rates, thresholds, deadlines or filing requirements.

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Inheritance Tax Rates Vary by State and Relationship

Inheritance tax rates range from zero percent for close relatives in certain states to 16 percent for distant heirs, with the exact amount determined by the decedent's state of residence and the beneficiary's relationship.

Federal Estate Tax Basics

The federal government taxes the right to transfer property at death rather than imposing an inheritance tax on recipients. The gross estate includes the fair market value of all assets owned or in which the decedent held interests at death. Deductions for debts, administration expenses, spousal transfers, and charitable bequests reduce the amount to the taxable estate, which is then offset by the unified credit. Most simple estates do not require filing when values fall below the annual threshold. The filing threshold was $11,180,000 for 2018 deaths, $11,400,000 for 2019, $11,580,000 for 2020, and $11,700,000 for 2021. Estates with a surviving spouse may elect to transfer any unused exemption via a timely filed return.

Pennsylvania Inheritance Tax Rates

Pennsylvania imposes inheritance tax on transfers by will, intestacy, or operation of law. The rate is zero percent on transfers to a surviving spouse or to a parent from a child aged 21 or younger. Direct descendants and lineal heirs pay 4.5 percent. Siblings pay 12 percent, and other heirs pay 15 percent. Transfers to charitable organizations, exempt institutions, or government entities are exempt. Property owned jointly between spouses is exempt from tax. All real and tangible personal property located in Pennsylvania is taxable for resident decedents, along with intangible property regardless of location. Nonresidents pay tax only on real and tangible personal property situated in the state. Returns are due nine months after death, and a 5 percent discount applies if paid within three months. Certain agricultural property transferred to eligible recipients after June 30, 2012, and personal property from the estate of a qualifying service member who died from duty-related causes after September 6, 2022, receive exemptions.

Kentucky Inheritance Tax Rates

Kentucky applies inheritance tax at rates from 6 percent to 16 percent. The precise rate depends on the beneficiary's relationship class, with closer relatives receiving more favorable treatment. The Department of Revenue provides a tax chart detailing brackets for each class, and filers must use forms current for the tax year of death. For the next step, read our overview of Georgia Sales Tax Rates and Rules Explained.

Inheritance Taxes Across Other States

Five states collect inheritance taxes: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Kentucky and New Jersey apply the highest top marginal rate of 16 percent. Maryland uses a flat 10 percent top rate. All five states set rates according to the recipient's proximity to the decedent, offering lower or zero rates to spouses and close relatives while taxing distant heirs at higher rates. Property transferred to charities or exempt institutions is generally excluded. Twelve states plus the District of Columbia impose estate taxes instead, with exemptions typically between $1 million and $7.16 million.

Calculation, Filing, and Payment

An inheritance tax is calculated on the value of assets each beneficiary receives. The executor or administrator named in the will, or a court-appointed administrator if there is no will, prepares and files the return. In Pennsylvania the return is filed in duplicate with the Register of Wills in the county of the decedent's residence. Nonresident returns involving Pennsylvania property go to the Nonresident Tax Unit. Kentucky requires current inheritance tax forms submitted to the Department of Revenue. Payments become due at death and are delinquent nine months later in Pennsylvania. Jointly held property is included to the extent of the decedent's interest, and property transferred within one year of death may be fully taxable even if held jointly.

Key Distinctions and Recent Adjustments

An estate tax is paid by the estate before distribution to heirs, whereas an inheritance tax is paid by each recipient based on the amount received. Both apply only in the state of the decedent's domicile or where taxable property is located. Rates in inheritance-tax states increase with relational distance. Individuals should confirm current forms, exemptions, and filing locations directly with the revenue department of the state where the decedent resided.

Sources

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