What States Have a State Inheritance Tax?


Quick Answer

Six states have state inheritance taxes as of 2015. Iowa, Kentucky, Nebraska and Pennsylvania have inheritance taxes only, while Maryland and New Jersey have both estate taxes and inheritance taxes.

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What States Have a State Inheritance Tax?
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Full Answer

Although both estate and inheritance taxes are death taxes, the difference is in which person or entity is taxed. Estate taxes are imposed upon the total value of taxable assets a deceased person leaves, while inheritance taxes are levied on the individual beneficiaries of a decedent's estate. Numerous states as well as the federal government levy estate taxes, although federal and most state estate tax exemption amounts are high enough so that most estates pay no estate taxes. The federal government has no inheritance tax.

In all six states that levy inheritance tax, spouses are exempt from paying inheritance tax, and children of decedents either are exempt or pay reduced inheritance tax rates. In some states, charities are also exempt from paying inheritance tax. Since the imposition of inheritance tax is based on the residency of the decedent and not the beneficiaries, both in-state and out-of-state residents who inherit assets must pay inheritance taxes. Life insurance paid to a living beneficiary is not considered a taxable asset, but a life insurance payout that goes directly into a decedent's estate is taxable.

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