How Do You Reduce State Inheritance Tax in Pennsylvania?


Quick Answer

State inheritance tax in Pennsylvania is reduced by 5 percent if the heirs pay the full tax within three months after the decedent dies, reports the Pennsylvania Department of Revenue. Some beneficiaries don't have to pay inheritance tax, states About.com, and certain family-owned businesses are exempt from it.

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Full Answer

Pennsylvania inheritance tax is reduced if assets are bequeathed to those closely related to the decedent, according to Nolo. Those entirely exempt from paying inheritance tax in Pennsylvania include surviving spouses, parents or stepparents inheriting from children less than 22 years old, and government or charitable organizations. Grandparents, parents and descendants are granted a $3,500 tax exemption and pay a lower tax rate of 4.5 percent as of 2015, states About.com. Brothers, sisters, half-brothers and half-sisters receive no exemption but pay a reduced tax of 12 percent. All other beneficiaries pay an inheritance tax rate of 15 percent.

Inheritance tax is waived for family farms and other small businesses inherited by family members, reports Nolo. The farms must continue to be used for agricultural purposes and produce a yearly gross income of $2,000 or more for at least seven years beyond the death of the decedent, states About.com. Small businesses must have less than $5 million in assets, less than 50 employees and continue to operate for at least seven years, reports Nolo.

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