Only a small number of states in the US impose inheritance taxes in addition to the federal estate tax. Additionally, Americans only face the possibility of paying three levies in one state: the state estate tax, the federal estate tax, and the state inheritance tax.
Furthermore, many people may end up avoiding a sizable tax bill due to estate-tax exemption thresholds that reach seven or even eight figures, as noted by Medora Lee, a money and personal finance correspondent for USA Today. Additionally, exemptions are advantageous to surviving spouses.
What distinguishes estate tax from inheritance tax?
The key distinction between estate and inheritance tax, according to Tax Foundation analyst Joseph Johns, is what is taxed, when the tax is imposed during the inheritance process, and who is responsible for paying it.
“Estate taxes are imposed on the total value of the estate because they are paid by the decedent’s estate prior to assets being distributed to heirs,” according to Johns. He clarifies that an inheritance tax is only dependent “on the amount distributed to each beneficiary.” This levy is paid by the beneficiary.
Naturally, if state inheritance tax and federal estate tax are both owed on given assets, then such a same-difference situation cannot occur. In the meanwhile, certain states may have their own estate tax but not an inheritance tax. Additionally, one state possesses all three, as was already mentioned.
Which US states impose inheritance taxes?
Iowa, Kentucky, Nebraska, New Jersey, Pennsylvania, and Maryland are the six states in the US that impose inheritance taxes, according to the Tax Foundation.
Maryland has both a state inheritance tax (up to 10%) and a state estate tax (up to 16%) in addition to the federal estate tax.
With a maximum inheritance tax of 2%, Iowa has the lowest state inheritance tax. At a maximum rate of 16%, Kentucky and New Jersey have the highest, however they are part of a trio of states that provide exemptions up to a specific threshold. Nebraska’s is the most generous at $100,000.
Additionally, according to the Tax Foundation, surviving spouses are not subject to any of these inheritance taxes.
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Inheritance tax states: highest rate plus exemption
| State | Inheritance Tax Rate | Exemption Value |
| Iowa | 2% | No Value Exemption |
| Kentucky | 16% | $1,000 |
| Maryland | 10% | No Value Exemption |
| Nebraska | 15% | $100,000 |
| New Jersey | 16% | $25,000 |
Which states impose estate taxes?
Thirteen states and districts, including Maryland, impose a state estate tax on assets. Hawaii and Washington are the highest, with maximum rates of 20%.
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The top estate tax bands in Maine and Connecticut are the lowest at 12%, although the exemption threshold in Connecticut is somewhat higher at $13.61 million.
| State | Inheritance Tax Rate | Exemption Value |
| Connecticut | 12% | $13.61m |
| Hawaii | 20% | $5.49m |
| Illinois | 16% | $4m |
| Maine | 12% | $6.8m |
| Maryland | 16% | $5m |
| Massachusetts | 16% | $2m |
| Minnesota | 16% | $3m |
| New York | 16% | $6.94m |
| Oregon | 16% | $1m |
| Rhode Island | 16% | $1.775m |
| Vermont | 16% | $5m |
| Washington | 20% | $2.193m |
| D.C. | 16% | $4.716m |
What is the federal estate tax amount?
According to the Tax Foundation, the exemption threshold is currently $13.99 million, although the top rate for federal estate tax is 40%. As a result, “the majority of relatively simple estates […] do not require the filing of an estate tax return,” according to the Internal Revenue Service (IRS).
Other federal estate tax exemptions, according to the IRS, include assets bequeathed to “qualified charities” and surviving spouses.
