How to Calculate Inheritance Tax Owed by State (With Real Numbers)

Inheritance Tax Is Not Estate Tax

These are two different obligations, collected by different parties, calculated on different bases.

Estate tax applies to the decedent's total gross estate before distribution. The federal estate tax exemption for 2025 is $13.61 million per individual. Twelve states and the District of Columbia add their own estate tax on top of that, with exemptions ranging from $1 million in Oregon and Massachusetts to $13.61 million in states that conform to federal law.

Inheritance tax applies after distribution. The heir pays it, not the estate. The rate depends on who the heir is, not just how much they received. That distinction drives every calculation in this article.

The six states with active inheritance tax statutes are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state that imposes both.

If the decedent did not live in one of those six states at the time of death, no inheritance tax applies regardless of where the heir lives. State of domicile controls.

How the Calculation Works: Three Variables

Every inheritance tax calculation reduces to three inputs.

1. Beneficiary class. States rank heirs by relationship to the decedent. Class A typically includes spouses, children, and parents. Class B covers siblings, nieces, and nephews. Class C or D covers unrelated individuals or more distant relatives. The closer the relationship, the lower the rate and the higher the exemption.

2. Taxable inheritance amount. This is the gross amount received minus any applicable exemption for your class. Some exemptions are full exclusions. Others are flat dollar thresholds. Iowa, for example, exempts the first $25,000 received by a Class B beneficiary.

3. Marginal rate schedule. Most states apply graduated rates to the taxable amount. Pennsylvania is the exception. It uses flat rates: 4.5% for direct descendants, 12% for siblings, and 15% for all others.

State-by-State Rate Tables

Pennsylvania

Pennsylvania uses flat rates with no graduated brackets and no general exemption by class.

Charitable organizations and government entities also receive a 0% rate. No exemption threshold applies to the taxable classes. If you inherit $1 from a non-lineal relative, 15 cents goes to Pennsylvania.

New Jersey

New Jersey abolished its estate tax in 2018 but kept its inheritance tax. It exempts Class A beneficiaries entirely. Class A includes spouses, civil union partners, domestic partners, children, grandchildren, and parents.

Class C beneficiaries, which include siblings and spouses of children, face rates from 11% to 16% on amounts above $25,000.

Class D, covering everyone not in Class A or C, pays 15% on the first $700,000 above zero and 16% on amounts exceeding $700,000. There is no exemption for Class D.

Nebraska

Nebraska revised its inheritance tax structure significantly in 2023. The current rates apply to inheritances received after January 1, 2023.

Nebraska inheritance tax is administered at the county level, not the state level. The county court oversees the determination and collection.

Kentucky

Kentucky exempts Class A beneficiaries entirely. Class A includes spouses, parents, children, grandchildren, and siblings.

Class B covers nieces, nephews, daughters-in-law, sons-in-law, aunts, uncles, and great-grandchildren. The Class B exemption is $1,000, and rates range from 4% to 16% depending on the amount.

Class C covers all others with a $500 exemption, at rates from 6% to 16%.

Iowa

Iowa is phasing out its inheritance tax through 2025. For deaths occurring in 2024, the tax applies at 60% of the pre-2021 rate schedule. For deaths occurring in 2025, it drops to 20%. From January 1, 2025 onward, Iowa's inheritance tax is effectively zero for deaths in that year and beyond.

For estates where the decedent died before January 1, 2025, the old rules still apply. Immediate relatives were already exempt. Lineal descendants received a $50,000 exemption. More distant relatives and unrelated heirs faced rates from 5% to 15%.

If you are settling an Iowa estate from a 2024 death, confirm the applicable phase-down percentage with a tax professional before filing.

Maryland

Maryland imposes both estate tax and inheritance tax. The inheritance tax rate is a flat 10% for all non-exempt beneficiaries. Exempt classes include spouses, children, grandchildren, parents, grandparents, siblings, and stepchildren.

That list is notably broad. In practice, most Maryland heirs pay nothing. The 10% flat rate hits primarily unrelated beneficiaries, business partners who inherit through a will, and distant relatives outside the statutory exemption list.

Worked Example 1: Pennsylvania Non-Lineal Heir

A Pennsylvania resident dies and leaves $650,000 to a close friend. The friend is not a spouse, descendant, or sibling.

Beneficiary class: All others, 15% flat rate. Exemption: None. Taxable amount: $650,000. Tax owed: $650,000 x 0.15 = $97,500.

That same $650,000 left to a child would generate $650,000 x 0.045 = $29,250 in tax. The relationship difference costs $68,250.

Pennsylvania requires the estate to withhold and remit inheritance tax within nine months of the date of death. Payments made within three months receive a 5% discount. On $97,500, that discount is worth $4,875.

Worked Example 2: New Jersey Class C Beneficiary

A New Jersey resident dies and leaves $400,000 to a sibling.

Beneficiary class: Class C, which covers siblings. Exemption: $25,000. Taxable amount: $400,000 - $25,000 = $375,000.

New Jersey's Class C rate schedule:

• 11% on the first $1,075,000 above the exemption.

$375,000 x 0.11 = $41,250.

That same bequest to a child would generate zero tax. New Jersey Class A beneficiaries pay nothing.

If the sibling received $1,200,000 instead:

• $1,075,000 x 0.11 = $118,250.
• ($1,200,000 - $25,000 - $1,075,000) = $100,000 at 13%.
• $100,000 x 0.13 = $13,000.
• Total: $131,250.

What Assets Are Subject to Inheritance Tax

Real property located in the taxing state is always subject to inheritance tax if the state has one, regardless of where the heir lives. A California resident inheriting a Pennsylvania house owes Pennsylvania inheritance tax.

Financial accounts, personal property, and business interests follow the decedent's state of domicile. Life insurance proceeds paid directly to a named beneficiary are generally exempt from inheritance tax in all six states. Jointly held property with right of survivorship transfers outside the estate and the inheritance tax calculation in most circumstances.

Retirement accounts, including IRAs and 401(k)s, are typically subject to inheritance tax in these states because they pass through beneficiary designation but are still treated as part of the taxable estate for inheritance tax purposes. Pennsylvania specifically includes retirement account distributions in the taxable base for non-spouse beneficiaries.

Filing Deadlines and Penalties

Missing these deadlines does not eliminate the liability. States can pursue heirs for unpaid inheritance tax, and the obligation runs with the asset in some jurisdictions.

Run the Numbers Before the Estate Closes

Inheritance tax liability should be calculated before assets are distributed, not after. If an executor distributes the full value of an estate to heirs who then owe inheritance tax, the estate may lack funds to cover the obligation. Some states hold the executor personally liable for unpaid tax when distribution preceded payment.

The six-state calculation is mechanical once you know the beneficiary class and the applicable rate table. The CalcMoney income tax calculator lets you model the taxable portion, apply the correct rate schedule, and produce a defensible number before you file.

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