Federal inheritance tax is collected by the Internal Revenue Service and deposited with the U.S. Treasury, according to the IRS. In addition to federal taxes, seven states imposed inheritance taxes in 2015, which pay into their respective treasuries. The laws governing such taxes vary by jurisdiction.Continue Reading
Federal inheritance tax is not to be confused with the estate tax, though both are governed by similar legal structures. Estate tax is a duty imposed on the estate of the deceased, while inheritance tax is owed by beneficiaries on the wealth passed to them after the estate has been divided, states the IRS. Both are taxed, but each is subject to different exemptions and capped at a different rate. In either case, the money paid on these taxes joins the general fund and is available to be spent by Congress through the normal allocation process.
According to Forbes, 13 states impose their own tax on estates valued as low as $1 million, seven states tax inheritance, and only two, New Jersey and Maryland, tax both. State-level inheritance and estate taxes are wholly independent of federal taxation, and they pay directly to the state that collects them. The controlling laws in each area can be complicated, which is why only a licensed tax professional can be trusted to give definitive advice on compliance.Learn more about Taxes