Inheritance tax is a state tax on assets inherited from someone who died. For federal tax purposes, inheritance generally isn’t considered income. But in some states, an inheritance can be taxable.
As with other aspects of the tax code, the Tax Cuts and Jobs Act of 2017 significantly changed the way estate tax applies to Americans. The 2020 limit, after adjusting for inflation, is $11.58 million. Any funds after that will be taxed as they pass on to heirs, at a rate that varies by the amount being passed on.
Planning Ahead. In most cases, estate and inheritance taxes only affect people with a lot of money to leave. Less than 0.01% of all taxpayers get hit by the federal estate tax, and no state charges estate taxes on estates worth less than $1 million.
Another 14 states and Washington, D.C., have only an estate tax (on top of the federal estate tax). But, if you live in New Jersey or Maryland, you get both a state estate tax and a state inheritance tax -- on top the federal estate tax. The Maryland inheritance tax rate is 10 percent, and the rate in New Jersey is 16 percent.
A handful of states have inheritance tax rules related to an inheritance received from a deceased person’s estate. There is no inheritance tax on the federal level that is levied by the Internal Revenue Service (IRS). The “inheritance tax” on the federal level is properly referred to as the estate tax and falls under the federal estate tax laws.
An inheritance tax is a state tax that you pay when you receive money or property from the estate of a deceased person. Unlike the federal estate tax, the beneficiary of the property is responsible for paying the tax, not the estate. However, as of 2020, only six states impose an inheritance tax.
Internal Revenue Service. "Deceased Taxpayers – Filing the Estate Income Tax Return, Form 1041."Accessed Jan. 30, 2020. JRC Insurance Group. "States with an inheritance tax."Accessed Jan. 17 ...
Comparison based on paper check mailed from the IRS. Amended tax returns not included in flat fees. A separate agreement is required for all Tax Audit & Notice Services. Tax Audit & Notice Services include tax advice only. Consult your own attorney for legal advice. A Power of Attorney may be required for some Tax Audit & Notice Services.
State Inheritance Tax Chart . Below is a chart that summarizes the details of the current laws that govern inheritance taxes in the six states that collect them. Descendants include children and grandchildren. The lowest tax rates apply to the most closely related non-exempt family members.
Illinois Estate Tax Rate. The estate tax rate for Illinois is graduated and the top rate is 16%. Remember that in Illinois, you pay taxes on the entire estate if it is above the $4 million threshold. Find your taxable estate bracket in the chart below. The second column, Base Taxes Paid, shows what you owe on money that falls below your bracket.