How Inheritance Tax Works in 2026 by State
Quick Answer
Only 6 U.S. states tax inheritances (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania), typically on amounts over $10,000–$40,000. Most Americans pay zero inheritance tax. Federal estate tax applies only to estates over $13.61 million (2026; married couples: $27.22 million), so 99.9% of estates are exempt. However, 12 states have their own estate tax (separate from inheritance tax) on estates over $1–$6 million. Your state determines most tax burden; your estate size determines federal exposure.
Federal Estate Tax (2026 Exemption)
The federal government taxes large estates.
2026 exemption:
- Single person: $13.61 million
- Married couple: $27.22 million (portable exemption)
Tax rate: 40% on amounts exceeding exemption
In practice:
- 99.8% of American estates are below $13.61 million → Pay $0 federal estate tax
- Only wealthy estates (>$13.61M) pay 40% federal tax on excess
- Example: $15M estate pays 40% × ($15M – $13.61M) = 40% × $1.39M = $556,000 federal tax
Historical note: The exemption was $12.92M in 2023, increased to $13.61M in 2026, and is adjusted annually for inflation.
Political note: This exemption expires December 31, 2025 (sunsets back to ~$7M unless Congress extends). Estate planning for high-net-worth individuals often includes strategies to lock in current exemption before potential decrease.
State Inheritance Taxes (6 States)
Only 6 states tax the beneficiaries on what they inherit.
| State | Tax Rate | Exemptions | Who Pays | Notes |
|---|---|---|---|---|
| Iowa | 0–16% | Spouse exempt; children exempt; others $25,000 | Beneficiary | Highest rate; few exempt |
| Kentucky | 0–16% | Spouse, children exempt; others $1,000 | Beneficiary | Similar to Iowa |
| Maryland | 0–10% | Spouse, children exempt; $1,000 for others | Beneficiary | Lower rate than Iowa/KY |
| Nebraska | 1–18% | Spouse, children exempt; grandchildren, $40k+ exempt | Beneficiary | Highest rate possible |
| New Jersey | 0–16% | Spouse, children, grandchildren exempt if under $25,000 | Beneficiary | Complex calculations |
| Pennsylvania | 0–15% | Spouse exempt; children 0% (no tax); others taxed | Beneficiary | Only state where kids exempt |
How inheritance tax works:
Assume your parent dies in Kentucky, leaves $100,000 to you (non-spouse, non-child).
Kentucky inheritance tax:
First $1,000: Exempt
$1,000–$10,000: 2% tax = $180
$10,000–$100,000: 4% tax = $3,600
Total tax owed: $3,780
You receive: $96,220 (instead of $100,000)
Key insight: In these 6 states, spouse and children are usually exempt from inheritance tax (or heavily favored). Non-relatives pay the highest rates.
State Estate Taxes (12 States + DC)
Separate from inheritance tax, some states also tax estates (like federal).
States with estate tax (2026):
- Connecticut: $12.92M exemption, 12% max rate
- Delaware: $5.45M exemption, 16% max rate
- Illinois: $4M exemption, 16% max rate
- Maine: $6.15M exemption, 12% max rate
- Maryland: $5.85M exemption, 16% max rate
- Massachusetts: $1M exemption, 16% max rate
- Minnesota: $4.9M exemption, 16% max rate
- New Hampshire: $1.2M exemption (if from investments), 20% max
- New Jersey: $6.94M exemption, 16% max rate
- New York: $6.94M exemption, 16% max rate
- Oregon: $1M exemption, 16% max rate
- Rhode Island: $6.94M exemption, 16% max rate
- Washington DC: $5.85M exemption, 16% max rate
How estate tax works:
Assume you die in Massachusetts with $3M estate.
Federal estate tax:
$3M estate < $13.61M exemption = $0 federal tax
Massachusetts estate tax:
$3M estate > $1M exemption
Tax on $2M at 16% = $320,000
Estate pays $320,000 tax, heirs receive $2.68M
Who Actually Pays Inheritance/Estate Tax?
Estate tax example (high-net-worth): You die with $5M estate in New York (state estate tax state).
State estate tax:
$5M – $6.94M exemption = No state tax (under exemption)
Federal: $5M < $13.61M exemption = No federal tax
Total tax: $0
You need $5M+ to worry about NY state estate tax.
Inheritance tax example (any amount can trigger): You die in Pennsylvania with $200,000 leaving $50,000 to a friend.
PA inheritance tax:
Friend gets $50,000 bequest
PA rate for non-relative: 15%
Tax owed: $50,000 × 15% = $7,500
Friend receives: $42,500
Even modest inheritances can trigger tax in PA.
Planning Strategies to Minimize Taxes
Strategy 1: Move to a No-Tax State
If you live in Massachusetts ($1M exemption, 16% rate) and have $5M, moving to Florida (no estate tax) saves:
MA estate tax: ($5M – $1M) × 16% = $640,000
FL estate tax: $0
Savings: $640,000
Action: If you have significant assets and live in high-tax state, consider moving (requires establishing residency, usually 6 months+).
Strategy 2: Gift During Lifetime
Annual gift tax exclusion (2026): $18,000 per person per year tax-free.
Married couple can gift: $36,000/year to each child tax-free
Over 30 years: $1,080,000 removed from taxable estate
If you're in 40% estate tax bracket: Saves $432,000 in taxes
Action: Make annual gifts to children, grandchildren to reduce estate size.
Strategy 3: Irrevocable Life Insurance Trust (ILIT)
Removes life insurance proceeds (often $1M+) from taxable estate.
Regular insurance: You own $1M policy
At death: $1M counts toward $13.61M exemption
You lose $400,000 of exemption tax-free threshold
With ILIT: Trust owns $1M policy
At death: $1M doesn't count toward exemption
You keep full exemption, policy pays tax-free to trust
Saves: $1M × 40% = $400,000 in potential taxes
Strategy 4: Charitable Donations
Donating to charity removes assets from taxable estate.
You have $6M, want to leave $4M to kids, $2M to charity
Donate $2M to charity during lifetime:
- Tax deduction saves: $2M × 37% (top bracket) = $740,000
- Estate shrinks to $4M (below exemption if married)
- Estate tax on $4M: $0
Strategy 5: Dynasty Trust (for very wealthy)
Complex structure that passes wealth across generations while minimizing tax.
Most people don't need this (requires $10M+).
Your State: Quick Reference
No inheritance or estate tax: Arizona, Alaska, Arkansas, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Louisiana, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming
Inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania
Estate tax only: Connecticut, Delaware, Illinois, Maine, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Washington DC
Both: Maryland, New Jersey (inheritors from out-of-state pay estate tax; in-state inheritors pay inheritance tax)
Planning if You Live in a Tax State
If you live in Pennsylvania (inheritance tax state):
- Leaving money to spouse? No tax
- Leaving to children? No tax (PA exempts kids)
- Leaving to friend or non-child relative? 15% tax
If you live in Massachusetts (estate tax state):
- Estate over $1M? Your estate pays state tax (not beneficiary)
- Example: $3M estate, estate pays ~$320,000 state tax, heirs get $2.68M
If you live in New York (both estate and inheritance tax):
- High-net-worth individuals doubly impacted
- Consider moving to FL, TX, or NV (no state tax)
SECURE Act Impact (2023+) on Inheritance
The SECURE Act (Secure Every Community's Retirement Enhancement Act) changed tax rules for inheriting retirement accounts:
Old rule: Beneficiaries could stretch IRA withdrawals over their lifetime (tax benefit for decades)
New rule (2023+): Most non-spouse beneficiaries must withdraw all inherited IRA funds within 10 years
Impact:
- Inherited $500,000 IRA now triggers large tax bill within 10 years
- Instead of paying taxes gradually over 30+ years
- High-net-worth estates now owe more income tax
Planning:
- High-net-worth individuals should review beneficiary designations
- Consider Roth conversions (pay tax now, tax-free growth after)
- Consider trusts as beneficiary for better planning
- Consult tax attorney if assets >$1M
Real-World Example: Tax Impact by State
Scenario: Person with $2M dies, leaving everything to adult children
Florida (no state tax):
Estate: $2M
Federal estate tax: $0 (under $13.61M exemption)
State estate tax: $0
Heirs receive: $2M
New York (state estate tax):
Estate: $2M
Federal estate tax: $0
NY estate tax: ($2M – $6.94M exemption) = $0 (still under)
Heirs receive: $2M
Note: NY exemption is high; over $6.94M triggers tax
Massachusetts (state estate tax):
Estate: $2M
Federal estate tax: $0
MA estate tax: ($2M – $1M) × 16% = $160,000
Heirs receive: $1.84M
Same $2M estate, different states:
- Florida: Heirs get $2M
- Massachusetts: Heirs get $1.84M
- Difference: $160,000 (8% of estate)
Should You Move for Tax Purposes?
Yes, if:
- You have $5M+ in assets
- You live in MA, OR, NJ, NY, or other high-exemption state
- You're retired or semi-retired (can establish residency elsewhere)
Considerations:
- Cost to move: $10,000–$30,000
- Savings: Often $200,000–$500,000+
- ROI: Usually positive if assets >$3M
- Timeline: Establish residency before death (ideally 1+ year)
Popular low-tax destinations:
- Florida (no income/inheritance/estate tax)
- Texas (no income/inheritance/estate tax)
- Nevada (no income/inheritance/estate tax)
- Wyoming (no income/inheritance/estate tax)
Your Inheritance Tax Checklist
- Identify your state(s) (residence, property locations)
- Check if your state has inheritance tax
- Check if your state has estate tax
- Calculate your estate value
- If >exemption, consult tax attorney
- Consider gifting strategy if assets >$5M
- Update beneficiaries to reflect tax planning
- If retired/semi-retired and assets >$5M, consider moving to low-tax state
Sources
- IRS. (2026). Estate and Gift Tax. https://www.irs.gov/
- Federation of Tax Administrators. (2026). State Inheritance/Estate Tax Rules. https://www.taxadmin.org/
- American Bar Association. (2026). State Tax Planning. https://www.americanbar.org/
- Tax Foundation. (2026). State Estate Tax Exemptions. https://taxfoundation.org/
- NOLO. (2026). Inheritance Tax by State. https://www.nolo.com/