Inheritance Tax 2026: Which States Have It & What You'll Owe

There is no federal "inheritance tax." The federal government imposes an estate tax on the estate before distribution — heirs receive whatever remains after the estate pays its taxes. But 5 states impose a separate inheritance tax levied on the beneficiary after they receive the money. If you live in — or inherit property located in — Pennsylvania, New Jersey, Maryland, Kentucky, or Nebraska, the person receiving the inheritance may owe state tax on what they receive.

Federal "inheritance tax": it doesn't exist

When people search "federal inheritance tax," they're usually thinking of the federal estate tax. The U.S. federal government has never imposed a tax called an "inheritance tax." What it does impose is a federal estate tax — paid by the estate before any distribution to heirs — with a 2026 exemption of $15 million per individual ($30M per married couple) after the One Big Beautiful Bill Act permanently set that amount.¹

If an estate is worth $10M and the single decedent has used none of their lifetime exemption, no federal estate tax is owed and heirs receive the full $10M. The heirs don't pay federal tax on what they receive — the income tax basis of inherited property simply steps up to fair market value at death (see Step-Up Basis Calculator).

State inheritance tax is a separate, additional tax. A Pennsylvania heir who inherits $500,000 in cash from a parent's estate pays nothing federally but owes Pennsylvania 4.5% ($22,500) directly to the state.

The 5 states with inheritance tax in 2026

Iowa had an inheritance tax that was fully phased out and eliminated for deaths on or after January 1, 2025. As of 2026, five states remain:

Sources: state revenue departments; ACTEC State Death Tax Chart (2026). Rates verified June 2026 — confirm with your advisor before acting.

Pennsylvania inheritance tax (2026)

Pennsylvania's inheritance tax is notable for two reasons: it applies to the first dollar inherited (no exemption threshold) and it charges even direct descendants. A child inheriting $1M from a parent pays 4.5% — $45,000 — directly to the state. No deduction, no floor.

PA planning note: Pennsylvania charges siblings 12% — more than 2.5× the rate for children. A sibling inheriting a $2M share of a family estate owes $240,000 in PA inheritance tax. Structuring lifetime gifts prior to death (which PA taxes at a 0% gift rate) can reduce this exposure significantly. PA inheritance tax is paid within 9 months of death; if paid within 3 months, a 5% discount applies.²

New Jersey inheritance tax (2026)

New Jersey eliminated its estate tax in 2018 but kept its inheritance tax. The tax is organized by beneficiary class:

NJ planning note: New Jersey's treatment of unmarried partners is severe. A couple who has lived together for 20 years — but never married or registered a civil union — owes 15–16% on every dollar one leaves the other at death. The entire inheritance is taxed at Class D rates with no exemption. For a $2M bequest, that is $300,000+ in NJ inheritance tax that a simple civil union registration or marriage would eliminate entirely.³

Maryland inheritance tax (2026)

Maryland is the only state in the country with both a state estate tax and a state inheritance tax. Large Maryland estates can be hit twice.

• Maryland estate tax: paid by the estate; $5M exemption; top rate 16% on amounts above $5M.
• Maryland inheritance tax: paid by heirs; flat 10% rate; no exemption amount — applies from the first dollar for non-exempt heirs.

Exempt from Maryland inheritance tax: spouse, children, grandchildren, parents, siblings, and the spouse of a deceased child. Non-exempt ("collateral") heirs — nieces, nephews, aunts, uncles, cousins, friends, and unmarried partners — pay a flat 10% on everything they receive.⁴

Example: a Maryland resident with a $7M estate who leaves $2M to a niece and $5M to her daughter. The daughter's $5M is exempt from inheritance tax (but the estate pays Maryland estate tax on $2M over the $5M exemption at up to 16%). The niece's $2M triggers a $200,000 Maryland inheritance tax bill — paid by the niece directly.

Kentucky inheritance tax (2026)

Kentucky reorganized its inheritance tax beneficiary classes through recent legislation. Effective January 1, 2026, siblings are now fully exempt (Class A), joining spouses, parents, children, and grandchildren. This is a meaningful change — previously, siblings in Kentucky were taxed at Class B rates.⁵

Kentucky inheritance tax is due within 18 months of the decedent's death; a 5% discount applies if paid within 9 months.

Nebraska inheritance tax (2026)

Nebraska's 2023 reform law (LB 310) made the most significant change to its inheritance tax in decades: lineal heirs — spouses, parents, grandparents, children, grandchildren, and great-grandchildren — are now fully exempt from Nebraska inheritance tax. Before LB 310, these heirs paid 1% above a $40,000 exemption. The reform also reduced the rate for non-relatives from 18% to 15%.⁶

Nebraska's reform means that for most estate plans — where assets pass to a spouse and then to children — Nebraska inheritance tax is no longer a planning concern. The exposure that remains is for Nebraska residents with significant bequests to non-relatives, business partners, or charities that don't qualify for an exemption.

Estate tax vs. inheritance tax: side-by-side

Many HNW families encounter both taxes simultaneously. Here's how they interact:

An estate passing from a New Jersey resident entirely to children and grandchildren triggers no NJ inheritance tax. But if that same estate had been subject to federal estate tax (if over $15M), the estate would pay federal estate tax before distribution, and then the children receive what remains — no NJ inheritance tax. NJ chose not to stack its inheritance tax on top of what the federal estate already taxed.

Planning strategies to reduce inheritance tax for your heirs

Lifetime gifting (eliminates the asset from the taxable base)

State inheritance tax — like most estate-related taxes — is computed on what heirs receive at death. Assets transferred during life don't go through the inheritance tax system. A Pennsylvania parent who gives a child $250,000 during life (for a house down payment, business investment, or annual exclusion gifts over many years) eliminates roughly $11,250 in PA inheritance tax that would otherwise come due at death. See the Annual Gift Calculator for the 10-year estate impact of sustained annual gifting.

Pennsylvania specifically: gifts made within one year of death may still be subject to inheritance tax. Gifts made more than one year prior to death are not included in the Pennsylvania taxable estate.²

Life insurance in an ILIT (equalizes inheritance after tax)

If a portion of your estate will pass to Class B or C beneficiaries (nieces, nephews, non-relatives) in inheritance-tax states, life insurance owned by an Irrevocable Life Insurance Trust (ILIT) can fund a tax-free pool of cash. The ILIT pays the inheritance tax bill or provides an equivalent inheritance to the taxed beneficiaries, without those funds passing through the decedent's estate (and thus not subject to either estate or inheritance tax themselves).

Charitable bequests in NJ and MD

In New Jersey (Class E) and Maryland, qualifying charities are fully exempt from inheritance tax. If you have charitable intent, leaving assets to a qualifying charity at death eliminates the inheritance tax on those assets entirely — compared to leaving the same assets to a Class D beneficiary (15–16% in NJ) or a collateral heir (10% in MD). A donor-advised fund named as a beneficiary achieves this in all five inheritance-tax states.

Trust structures and marital deduction planning

In all five inheritance-tax states, spouses are either fully exempt or subject to zero tax. Assets that pass to a surviving spouse avoid inheritance tax. The question is what happens at the survivor's death. In states like Pennsylvania, the children will pay 4.5% at the second death; a bypass trust or QTIP structure doesn't change that outcome, but it can help manage the overall estate plan for other objectives. For blended families, QTIP trusts are especially important to ensure assets pass correctly after the second death.

Reviewing beneficiary designations

Beneficiary designations on IRAs, 401(k)s, and life insurance override your will. If you're a Pennsylvania resident who named a friend as IRA beneficiary 20 years ago (15% PA inheritance tax on the full balance), a quick update changes who owes what. A thorough beneficiary designation audit is especially important in inheritance-tax states because the stakes are higher.

Form 706 and inheritance tax: how they interact

Federal Form 706 (the federal estate tax return) and state inheritance tax returns are filed separately and managed by different entities. Form 706 is filed by the estate's executor if the gross estate exceeds the $15M federal filing threshold. State inheritance tax returns are generally filed with the state's probate court or revenue department, and it's the beneficiary's obligation to pay — not the executor's. In practice, executors often coordinate payment on behalf of heirs from estate funds before distribution, but legally the liability belongs to each heir.

For portability election purposes: the filing of Form 706 is a federal matter and has no interaction with state inheritance tax obligations. Even if no federal estate tax is owed, Form 706 may still need to be filed to preserve the DSUE for the surviving spouse — and that decision is independent of any state inheritance tax filing.

Sources

1. IRS — Frequently Asked Questions on Estate Taxes (federal estate tax exemption $15M for 2026 per OBBBA; no federal inheritance tax; IRC §2001 et seq.)
2. Pennsylvania Department of Revenue — Inheritance Tax (rates by relationship: 0%/4.5%/12%/15%; no exemption floor; 9-month due date; 5% discount for 3-month payment; 1-year gift lookback)
3. New Jersey Division of Taxation — Inheritance Tax (Class A exempt; Class C $25K exemption, 11–16%; Class D 15–16%; Class E exempt charities)
4. Maryland Register of Wills — Taxes (10% flat inheritance tax on collateral heirs; lineal heirs exempt; Maryland estate tax $5M exemption, 16% top rate)
5. Kentucky Department of Revenue — Inheritance & Estate Tax (Class A exempt including siblings effective January 1, 2026; Class B 4–16%; Class C 6–16%)
6. Nebraska Department of Revenue — Chapter 17 Inheritance Tax (LB 310 reform: lineal heirs exempt; close relatives 1% above $40K; non-relatives 15% above $25K)

Rates and exemptions verified as of June 2026 against state revenue department sources. Iowa inheritance tax eliminated effective January 1, 2025. Kentucky Class A expansion for siblings effective January 1, 2026.