Inheritance tax: Do you pay taxes on inherited money? 

What is inheritance tax?

An inheritance tax is a state-level tax you may owe if you inherit assets from a deceased person.

How the inheritance tax works 

The beneficiary, or person who receives an inheritance, owes inheritance tax, based on the total value of what they receive.

There is no federal inheritance tax (but there is a federal estate tax), and most states don’t have an inheritance tax either.

Whether or not you owe inheritance tax as a beneficiary depends on the state where the deceased person lived, not where you live. So, if you live in Maryland and have inherited a sum of money from your recently passed great uncle in Colorado, you won’t owe inheritance tax, even though you live in a state with one.

Do you pay taxes on inherited money?

In most cases, you do not have to pay tax on inherited money. But there are some exceptions.

When inherited money actually gets taxed: The exceptions

• If the deceased person lived in one of the few states that have an inheritance tax, you may have to pay state inheritance tax on some or all of the money you inherit. Tax rates and exemptions vary by state, and states often base them on your relationship to the deceased person and the amount of your inheritance.
• If the total estate is worth more than the federal and/or state threshold (the federal threshold is $15 million for 2026), the estate may owe estate tax, which it pays before you receive your inheritance.
• If you inherit a traditional 401(k) or Individual Retirement Account (IRA), the IRS taxes your withdrawals as ordinary income. If you inherit a Roth IRA, on the other hand, your withdrawals are generally tax free.
• If you sell property you inherit, you may owe capital gains tax on any increase in value since the deceased person's death.
• If you inherit an asset that earns interest, dividends, or rent after the deceased person’s death, you must pay tax on the earnings.
• If you inherit the deceased person’s unpaid wages, such as any uncollected bonuses or salary, you owe income tax on those earnings at your regular rate.

Which states have an inheritance tax in 2026? 

Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania are the only states in 2026 that have an inheritance tax.

How much is inheritance tax in Kentucky? 

Kentucky bases your inheritance tax rate on how much you inherit and your relationship to the deceased person, and it organizes beneficiaries into 3 classes:

• Class A: Spouses, children, stepchildren, grandchildren, parents, siblings, and half-siblings are exempt from inheritance tax.
• Class B: Nieces and nephews, aunts and uncles, daughters and sons-in-law, and great-grandchildren pay 4% to 16% after the first $1,000, with rates that rise with the value of the inheritance.
• Class C: All other individuals, including friends, cousins, unmarried partners, and non-exempt organizations, pay 6% to 16% after the first $500, with rates that rise with the value of the inheritance.

How much is inheritance tax in Maryland?

Maryland has a flat inheritance tax rate of 10%, and most close relatives are exempt. Spouses, children and their spouses, grandchildren, parents, siblings, grandparents, stepchildren, stepparents, and qualifying charities do not have to pay inheritance tax. Maryland’s inheritance tax only applies to nieces and nephews, aunts and uncles, cousins, friends, and unmarried or non-registered partners.

Maryland also has an estate tax but does not charge a double tax on inheritances. If both estate tax and inheritance tax are owed, the estate can receive credit for inheritance tax paid, dollar for dollar, against its Maryland estate tax.

How much is inheritance tax in Nebraska?

Nebraska’s inheritance tax rates range from 0% to 15%, based on your relationship to the deceased person. The tax is collected at the county level rather than state level.

Surviving spouses, any beneficiary under the age of 22, and qualified charities are all exempt from inheritance tax. Nebraska organizes all other beneficiaries into 3 classes:

• Class I: Immediate relatives, including parents, children, siblings, grandparents, and grandchildren, pay 1% after the first $100,000.
• Class II: Remote relatives, including aunts, uncles, nieces, and nephews, pay 11% after the first $40,000.
• Class III: All other relations, including cousins, friends, and corporations, pay 15% after the first $25,000.

Nebraska requires you to pay inheritance tax within 12 months of the deceased person’s death, and charges interest at a rate of 14% per year if you fail to do so.

How much is inheritance tax in New Jersey?

Like Kentucky, New Jersey’s inheritance tax rate is based on your relationship to the deceased person, but it organizes beneficiaries into 4 classes, A, C, D, and E:

• Class A: Spouses, civil union or domestic partners, children, stepchildren, grandchildren, parents, and grandparents are exempt from inheritance tax.
• Class C: Siblings (including half-siblings) and daughters- and sons-in-law (or widows or widowers of the deceased’s children) pay 11% to 16% after the first $25,000, with rates that increase with the value of the inheritance.
• Class D: Nieces and nephews, friends, unmarried or engaged partners, and everyone else pay 15% on the first $700,000 and 16% on anything above that.
• Class E: Qualified charities, schools, government agencies, and religious institutions are exempt from inheritance tax.

How much is inheritance tax in Pennsylvania?

Pennsylvania’s inheritance tax rate ranges from 0% to 15%, also based on your relationship to the deceased person.

• Surviving spouses, children 21 or younger inheriting from a parent, parents inheriting from a child who is 21 or younger, and qualified charitable and government organizations are exempt.
• Lineal beneficiaries, such as adult children, grandchildren, grandparents, and parents inheriting from an adult child, pay 4.5%.
• Siblings (including half-siblings and adopted siblings) pay 12%.
• Nieces and nephews, cousins, friends, unmarried partners, and all others pay 15%.

In Pennsylvania, your inheritance tax is due within 9 months of the deceased person’s death. The state offers a 5% discount on inheritance tax if you pay it within 3 months.

Inheritance tax vs. estate tax vs. income tax: What's the difference?

Inheritance tax, estate tax, and income tax can each apply to an inheritance in different ways. Here’s how they differ:

Are there any ways for homeowners to reduce inheritance tax liabilities? 

If you own a home in a state with an inheritance tax, you can use a few strategies to reduce the tax liability on what you leave behind:

• Leave your home to an exempt beneficiary: In every state with an inheritance tax, surviving spouses are exempt, and most states also exempt children and other close relatives. Leaving your home to a beneficiary who’s exempt means they might not owe any inheritance tax at all.
• Gift your home during your lifetime: Rather than waiting until you pass away, you can gift fractional shares of your home’s equity to your beneficiaries while you’re still alive. Keep in mind that Nebraska and Pennsylvania both tax gifts made within a set window before death (3 years in Nebraska and 1 year in Pennsylvania) as part of the inheritance.
• Transfer your home to an irrevocable trust: You can transfer the ownership of your home to an irrevocable trust and name your beneficiaries as recipients, which removes your home and its future growth entirely from your estate. The downside is that you lose direct control of your home and can’t easily sell it or borrow against it.

Whether you are receiving an inheritance or planning ahead for your loved ones, inheritance tax can be complicated. If you have questions or concerns, or just need tax help, don’t hesitate to reach out to your local Jackson Hewitt Tax Pro all year long. Find tax services near you, then walk in or book now.