A Handful of States Still Tax the Money Your Heirs Inherit, and Pennsylvania Starts From the Very First Dollar. Cross One State Line, and the Bill Is $0
Most families assume crossing a state line has nothing to do with inheritance taxes, but for heirs in certain states, one ZIP code difference can mean the difference between a five-figure bill and nothing at all.
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If your parent lives in Pennsylvania, New Jersey, Kentucky, Maryland, or Nebraska, the state can take a cut of what you inherit. Pennsylvania stands out as the harshest for one specific reason. It taxes a child’s inheritance starting from the very first dollar, with no exemption, no threshold, and no cushion to soften the hit. Meanwhile, a parent who dies just one state line away in places like Ohio, West Virginia, or Delaware triggers a state inheritance tax bill of exactly zero. That quiet quirk in state inheritance tax law catches nearly every family that hasn’t planned for it.
What an Inheritance Tax Actually Is
An inheritance tax is levied on the person receiving assets, and the rate depends on that person’s relationship to the deceased. That is different from an estate tax, which is charged to the estate itself based on its total size before anything is distributed. The federal government only levies an estate tax, and thanks to the One Big Beautiful Bill Act, the federal exemption is $15 million per individual in 2026, so almost no one pays it. State inheritance taxes are a separate animal, and the exemptions are far lower.
Real Count: Five States, Down From Six
Iowa completed its full phase-out of the inheritance tax effective January 1, 2025, leaving five states that still impose one: Pennsylvania, New Jersey, Kentucky, Maryland, and Nebraska. Maryland is the only state that levies both an inheritance tax and an estate tax.
Who Actually Pays: Relationship Matters More Than Dollars
Here is the correction that almost every headline gets wrong. In most of these states, children pay nothing. The tax hits siblings, nieces, nephews, and unrelated heirs. Spouses are exempt everywhere.
| State | Spouse | Child | Sibling | Unrelated |
|---|---|---|---|---|
| Pennsylvania | 0% | 4.5% from $1 | 12% | 15% |
| New Jersey | 0% | 0% (Class A) | 11%–16% over $25,000 | 15%–16% |
| Kentucky | 0% | 0% (Class A) | 0% (Class A) | up to 16% |
| Maryland | 0% | 0% | 0% | 10% |
| Nebraska | 0% | 1% over $100,000 | 1% over $100,000 | 15% over $25,000 |
Kentucky exempts Class A entirely (spouse, parents, children, grandchildren, siblings). Maryland exempts all lineal descendants and siblings. Nebraska reduced its rates under LB 310, effective 2023. Pennsylvania is the outlier that reaches children directly.
Why Pennsylvania Is the Headline
Pennsylvania charges 4.5% on transfers to lineal descendants like children, grandchildren, and parents, with no built-in exemption. So, on a $500,000 inheritance to a child, you are looking at a real bill in the low five figures owed to Harrisburg. Move that same parent’s legal residence across the border to Ohio or Delaware, and the exact same transfer to the same child costs nothing at the state level.
Domicile Trap Everyone Falls Into
Inheritance tax follows the decedent’s domicile, not the heir’s. Telling your kids to move to Florida does nothing. The parent has to change domicile, and domicile means more than owning a second home. States look at where you vote, where your driver’s license is issued, where you file resident income taxes, where your primary physician is, and where you actually spend your nights. Real estate physically located in the taxing state remains subject to that state’s inheritance tax regardless of where the owner moved.
Planning Levers Worth Knowing
- Lifetime gifting. Pennsylvania has a one-year lookback: gifts within a year of death are pulled back into the taxable estate. New Jersey has a three-year presumption.
- Life insurance. Proceeds paid to a named beneficiary are exempt in Pennsylvania and New Jersey. This is one of the cleanest workarounds.
- Retirement accounts. Treatment varies. Pennsylvania exempts most IRAs and 401(k)s if the decedent died before age 59½.
- Payable-on-death and joint accounts. Generally still taxable, but titling can affect timing and whose return reports it.
- Trusts. Useful for federal estate planning, but does not eliminate state inheritance tax on assets sourced to the taxing state.
- The early-pay discount. Pennsylvania grants a 5% discount on inheritance tax paid within three months of death. Almost no one uses it.
Plan Ahead of the Move
This tax is decided by the parent’s state of residence and the location of their real property. Review it well before any planned move, and check beneficiary forms, titling, and trust language while you are at it (we put the full estate cleanup checklist in a free guide here). State legislatures adjust these rules often, so confirm current rates with a local estate attorney before signing anything.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
