Estate & gift

Inheritance tax: who pays it in 2026

There is no federal inheritance tax, and Illinois does not have one. Five states do: Pennsylvania, New Jersey, Kentucky, Maryland and Nebraska. Iowa’s ended for deaths from January 1, 2025. Which state applies depends on where the person who died lived (or where their real estate is), not where you live. Spouses are exempt in all five, and children are exempt everywhere except Pennsylvania and Nebraska.

Inheritance tax vs. estate tax

An estate tax is charged on the whole estate before anything is handed out, and the estate pays it. An inheritance tax is charged on what each person receives, and the rate depends on how closely they were related to the person who died. The federal government has only an estate tax, and it applies only above $15 million in 2026.

States with an inheritance tax in 2026

The rate depends on who you were to the person who died. Close family pays least or nothing.

From each state’s revenue department or statute, read November 2026. Rates apply to what each beneficiary receives above any exemption.
State	Spouse	Children	Siblings	Others
Pennsylvania	0%	4.5%	12%	15%
New Jersey	Exempt	Exempt	11%–16% above $25,000	15%–16%
Kentucky	Exempt	Exempt	Exempt	4%–16% (nieces, nephews, in-laws) or 6%–16%
Maryland	Exempt	Exempt	Exempt	10%
Nebraska	Exempt	1% above $100,000	1% above $100,000	11% above $40,000 (aunts, uncles, nieces, nephews) or 15% above $25,000

Pennsylvania

Pennsylvania taxes almost every heir except a spouse, at a flat rate by relationship.

0% to a surviving spouse, and 0% to a parent inheriting from a child aged 21 or younger.
4.5% to children, grandchildren and other lineal heirs; 12% to siblings; 15% to everyone else except charities and exempt institutions.
Property owned jointly by spouses is exempt.
The tax becomes delinquent nine months after death. Paying within three months gets a 5% discount.
Example: a child inherits $200,000. Tax is $9,000, or $8,550 if paid within three months.

New Jersey

New Jersey sorts heirs into classes. Close family pays nothing.

Class A pays no tax: spouse, civil union or domestic partner, parents, grandparents, children (including adopted and stepchildren) and grandchildren.
Class C: siblings, and a son- or daughter-in-law. The first $25,000 is free, then 11%, 13%, 14% and 16% above $1,700,000.
Class D, everyone else (nieces, nephews, friends): 15% on the first $700,000 and 16% above it.
Class E, charities and other exempt organizations, pays nothing.
Example: a brother inherits $200,000. Tax is 11% of $175,000, or $19,250. A niece inheriting the same pays $30,000.
New Jersey’s estate tax ended for deaths from January 1, 2018.

Kentucky

Kentucky also uses classes, and close family pays nothing.

Class A pays no tax (for deaths after June 30, 1998): spouse, parents, children, grandchildren, brothers and sisters (including half-siblings).
Class B (nieces, nephews, sons- and daughters-in-law, aunts, uncles, great-grandchildren): $1,000 exemption, then 4% to 16%.
Class C, everyone else: $500 exemption, then 6% to 16%.
Paying within nine months of death gets a 5% discount. The return is due within 18 months.
Kentucky has no estate tax.

Maryland

Maryland has one flat rate and a long list of exempt relatives.

The rate is 10% of what passes to the beneficiary.
Exempt: spouse, parents, grandparents, children and their descendants, their spouses, stepchildren and stepparents, and brothers and sisters.
Life insurance paid to a named beneficiary (not the estate) is exempt.
Example: a niece inherits $200,000. Tax is $20,000.

Nebraska

Nebraska taxes even close relatives, but only above a large exemption.

Spouses pay nothing, and nothing is taxed for a beneficiary under 22.
Close relatives (parents, grandparents, children, grandchildren, brothers and sisters, and their spouses): 1% of what each receives above $100,000.
Aunts, uncles, nieces and nephews: 11% above $40,000.
Everyone else: 15% above $25,000.
Example: a child inherits $200,000 and pays $1,000. A nephew inheriting the same pays $17,600.
These amounts apply to deaths from January 1, 2023.

Is an inheritance taxable income?

No. Federal law excludes property you receive by inheritance from income, so you do not report the inheritance itself on your Form 1040. A few things that come with it can be taxed, though.

Selling inherited property: your basis is generally its fair market value on the date of death, so a quick sale usually has little gain. Any gain is reported on Schedule D.
Inherited traditional IRAs and 401(k)s: withdrawals are taxable income to you, just as they would have been to the owner.
Income the estate earns after death (interest, rent, dividends) is taxable to the estate or to you, depending on when it is paid out.

Illinois

Illinois has no inheritance tax. It does have an estate tax, paid by the estate, that applies to estates over $4 million according to the Illinois Attorney General. Bills to raise that threshold are pending, so check the current figure. If you live in Illinois but inherit from someone who lived in Pennsylvania, New Jersey, Kentucky, Maryland or Nebraska, that state’s inheritance tax can still apply.

Inherited money or property?

USTAXX works out the basis of what you inherited, reports a sale correctly and plans withdrawals from an inherited IRA. In Naperville, IL, or remotely.

Tax consulting and planning Book a consultation (847) 773-7070

Questions people ask

Is there a federal inheritance tax?

No. The federal government taxes large estates (over $15 million in 2026), not heirs. The inheritance itself is not income on your federal return.

Which states have an inheritance tax in 2026?

Pennsylvania, New Jersey, Kentucky, Maryland and Nebraska. Iowa’s ended for deaths on or after January 1, 2025.

Do I pay inheritance tax based on where I live?

No. It depends on where the person who died lived, and on where any real estate is. An Illinois resident inheriting from a Pennsylvania parent can owe Pennsylvania inheritance tax.

Does a spouse pay inheritance tax?

No. All five states exempt a surviving spouse (Pennsylvania at a 0% rate).

Is life insurance subject to inheritance tax?

It depends on the state. Maryland’s statute exempts proceeds paid to a named beneficiary. For federal income tax, life insurance paid because of death is generally not income.

Where these rules come from

General information, current when written, not advice about your situation. Fees and forms change; the official pages above are the authority.