Inheritance Tax by State: Who Owes It and How It Works

This guide was prepared with input from Jeff Burtka, an attorney trained at George Mason University Law School.

Most people have heard of the estate tax, but a lesser-known cousin, the inheritance tax, still exists in five states. If you inherit property from someone who lived in one of these states, part of that inheritance may need to go toward paying this tax.

Inheritance tax is strictly a state-level tax. The federal government has no inheritance tax of its own, though it does levy a federal estate tax. A handful of states also charge their own estate tax on top of any federal amount due. Maryland is unique in that it still collects both a state estate tax and a state inheritance tax.

• Who owes state inheritance tax
• Filing the inheritance tax return
• Why you might owe inheritance tax and estate tax

Who owes state inheritance tax

As of now, these states still collect an inheritance tax:

Every state that taxes inheritances excuses surviving spouses from paying it.

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

The tax follows the person who died, not the person who inherits. If the deceased lived in one of these states, or owned property there, you may owe inheritance tax even if you live somewhere else entirely. Picture someone living in California who inherits property from an aunt who lived in Pennsylvania — that person could still owe Pennsylvania's inheritance tax.

Iowa has phased out its inheritance tax. For deaths occurring on or after January 1, 2025, no inheritance tax is due in Iowa. If the death happened in 2024 or earlier, though, an inheritance tax bill may still apply.

How much you owe, if anything, depends heavily on your relationship to the person who died, and the exact rules differ from state to state. Every one of these states exempts surviving spouses entirely. Many also exempt or lightly tax children, grandchildren, and other near relatives, while taxing everyone else at a steeper rate.

Generally, the more distant your relationship to the deceased, the higher the rate you'll pay. In some states, the rate also climbs along with the value of what you inherit.

Nebraska illustrates this well:

• parents, siblings, and other close relatives can receive up to $100,000 tax-free, then owe just 1% on the market value above that
• more distant relatives owe 11% on amounts over $40,000, and
• unrelated heirs owe 15% on amounts over $25,000.

(Neb. Rev. Stat. §§ 77-2004, 77-2005, 77-2006 (2026).)

Across every state that still has this tax, the highest rate you'll ever encounter is 16%.

Filing the inheritance tax return

When a state inheritance tax return is required, filing it falls to the executor. Only one return needs to be submitted for the whole estate, regardless of how many people owe tax on their share.

If the estate goes through a formal probate proceeding, the executor typically must file the return and prove that all inheritance tax has been paid before the court will close the estate. But when an asset skips probate entirely — a payable-on-death (POD) bank account, for instance — the person named as beneficiary on that account becomes responsible for paying whatever tax is owed on it.

Why you might owe inheritance tax and estate tax

Beyond inheritance tax, some states and the federal government also charge a separate estate tax when someone dies. The federal version only touches the very largest estates — those worth more than $15 million for deaths in 2026. Because that exemption is so high, and because anything left to a surviving spouse is exempt outright, an estimated 99.9%-plus of estates never trigger federal estate tax at all. Still, if someone left behind a sizable fortune and lived in one of the five inheritance-tax states, their heirs could end up facing both a federal estate tax bill and a state inheritance tax bill.

Maryland remains the only state layering its own estate tax on top of its inheritance tax. That said, it's not quite as punishing as it sounds: the estate gets to deduct whatever inheritance tax it already paid from the state estate tax it owes.

Because these rules shift depending on where the deceased person lived and how your state defines relatives, it's worth checking the current law in the specific state involved, or talking with an estate attorney, before assuming what you'll owe.