An inheritance tax is a tax on assets inherited from someone who has died. The person who inherits the assets pays the tax, and rates can vary based on the size of the inheritance as well as the inheritors relationship to the deceased. The value of the inherited assets has to exceed a minimum amount before an inheritance tax is due, and only about 2% of taxpayers ever encounter this tax.

There is no federal inheritance tax, but there is a federal estate tax. The federal estate tax generally applies to assets over $12.92 million in 2023, and the estate tax rate ranges from 18% to 40% .

Only six states impose an inheritance tax: Maryland, Nebraska, Kentucky, New Jersey, Pennsylvania, and Iowa. The tax is levied on the person that receives assets from an estate and is typically based on the amount that is received. However, before an inheritance tax is due, the value of the assets has to exceed certain thresholds that can change each year. Because of this threshold, only about 2% of taxpayers will ever encounter this tax. The tax rates on inheritances can range from less than 1% to as high as 20% of the value of property.

Inheritance tax and estate tax are two different things. Inheritance tax is what the beneficiary must pay when they receive the wealth, while estate tax is the amount that’s taken out of someone’s estate upon their death based on the value of the estate. Executors of the estate use Form 706 to figure the amount owed.