This article covers state inheritance and estate tax figures for tax year 2026; rates and exemptions change by legislative session and are not tax advice — confirm your situation with a licensed estate attorney or CPA.
TL;DR — Quick Verdict
- Only five states impose an inheritance tax in 2026 — Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — while 12 states plus DC impose a separate estate tax.
- A $500,000 inheritance to a child costs $0 in every one of these states; the same amount to a non-relative can cost $75,000 or more.
- Kentucky exempted its entire Class B group (nieces, nephews, aunts, uncles) effective January 1, 2026 — a change that erased tax bills for thousands of heirs.
- Pennsylvania has no exemption floor: a sibling inheriting $200,000 owes $24,000 at the 12% sibling rate, taxed from the first dollar.
- Maryland is the only state levying both taxes; its inheritance tax is a flat 10% on non-exempt heirs above the estate’s $5 million estate-tax threshold.
- Recommendation: your beneficiary’s relationship to you — not your net worth — usually decides the bill, so plan bequests by relationship class before you plan by dollar amount.
A sibling in Pennsylvania who inherits $200,000 hands the state $24,000. A child inheriting the identical sum pays nothing. That gap — driven entirely by relationship, not wealth — is the defining feature of the American inheritance tax, and it catches families off guard every year. According to the Tax Foundation, only five states still levy an inheritance tax in 2026, yet the beneficiaries who fall inside them can lose 4% to 16% of what they receive.
Inheritance tax is not the same as estate tax, and the difference decides who writes the check. An estate tax is paid by the estate before assets are distributed; an inheritance tax is paid by each beneficiary based on what they personally receive. This guide breaks down every 2026 rate and exemption across Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania, models real dollar costs on a $500,000 transfer, and shows where the federal estate tax threshold and who it affects fits into the picture. It also flags the 2026 rule changes — Kentucky’s expanded exemption chief among them — that reshaped the map this year.
Which States Tax Inheritances in 2026 — and Which Tax Estates
The distinction between the two death taxes trips up most people, so start there. Inheritance tax targets the recipient; estate tax targets the estate. A family can sit far below the federal estate tax line and still owe a state inheritance tax on the first dollar, because the two systems measure entirely different things.
Five states impose an inheritance tax in 2026: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa, long the sixth, completed its phase-out on January 1, 2025, and no longer levies the tax. Separately, 12 states plus the District of Columbia impose an estate tax, according to Forbes and the Tax Foundation. Maryland is the sole state that imposes both.
Source: Tax Foundation, “Estate and Inheritance Taxes by State” (verify at taxfoundation.org); state revenue departments, 2026.
Because inheritance tax is relationship-driven, the same estate can generate wildly different bills depending on who inherits. That reality makes the beneficiary classes — not the estate’s headline value — the number that matters, and it interacts directly with inheritance order without a will by state when no estate plan exists to steer assets toward exempt heirs.
Pennsylvania Inheritance Tax: No Exemption, Rate by Relationship
Pennsylvania runs the most unforgiving structure of the five, because it has no general exemption. The tax applies from the first dollar, and the rate turns entirely on the beneficiary’s relationship to the decedent under 72 P.S. § 9116.
Four rates govern every transfer. A surviving spouse pays 0%. Direct descendants — children, grandchildren, and lineal heirs — pay 4.5%. Siblings pay 12%. Everyone else, including nieces, nephews, cousins, friends, and unmarried partners, pays 15%. Step-children qualify for the 4.5% lineal rate without formal adoption, a point the Pennsylvania Department of Revenue confirms and that saves families real money.
Source: Pennsylvania Department of Revenue, Inheritance Tax (verify at pa.gov); 72 P.S. § 9116, 2026.
Pennsylvania sweetens the deadline with a 5% discount for tax paid within three months of death — on a $500,000 lineal transfer taxed at 4.5%, that trims the $22,500 bill to $21,375. The nine-month filing window, the discount math, and the interaction with inherited IRA withdrawal rules and tax costs make early asset valuation the single highest-leverage move an executor can make.
New Jersey vs. Pennsylvania: Which Costs a Sibling More?
Siblings inherit in both states without the shelter that children enjoy, but the two systems reach that result through opposite mechanics. Pennsylvania taxes from dollar one at a flat 12%. New Jersey exempts the first $25,000, then applies graduated rates from 11% to 16% on the balance.
Run a $200,000 sibling inheritance through each. In Pennsylvania, the full $200,000 faces 12%, producing a $24,000 bill. In New Jersey, the first $25,000 is exempt and the remaining $175,000 is taxed at 11%, producing $19,250. New Jersey’s Class C sibling wins at this level — but the state’s graduated brackets climb to 13%, 14%, and 16% as the transfer grows past $1.1 million, eventually overtaking Pennsylvania’s flat rate.
Source: PA Dept. of Revenue and NJ Division of Taxation, N.J. Stat. § 54:34 (verify at nj.gov); 2026.
Verdict
For sibling inheritances under roughly $1.1 million, New Jersey costs less because of its $25,000 exemption and 11% entry rate. Pennsylvania’s flat 12% has no floor, so it bites hardest on small-to-mid transfers. Above the low-seven-figure range, New Jersey’s climbing brackets make it the more expensive state. For most families, New Jersey is the lighter burden on a sibling bequest — but neither state spares a sibling the way both spare a child.
Kentucky and Nebraska: Class-Based Rates and the 2026 Change
Kentucky rewrote its map this year. Effective January 1, 2026, the state amended its inheritance tax to exempt Class B beneficiaries entirely — nieces, nephews, half-nieces, half-nephews, aunts, uncles, sons-in-law, daughters-in-law, and great-grandchildren. Before the change, per the Kentucky Department of Revenue, those heirs paid 4% to 16% on amounts above a $1,000 exemption. Class A (spouse, children, siblings, grandchildren) was already fully exempt.
Only Class C now pays in Kentucky. Cousins, friends, and organizations outside Class A or B receive a $500 exemption and face 6% to 16% on the balance. Kentucky also grants a 5% discount for tax paid within nine months of death, mirroring Pennsylvania’s early-payment incentive.
Nebraska takes a different route — its inheritance tax is collected by counties, not the state, and rests on three relationship tiers for deaths on or after January 1, 2023. Immediate relatives and siblings pay 1% on amounts over a $100,000 exemption. More distant relatives (aunts, uncles, nieces, nephews) pay 11% over $40,000. All others pay 15% over $25,000. Surviving spouses and beneficiaries under age 22 pay nothing.
Source: Nebraska Department of Revenue, Inheritance Tax (verify at revenue.nebraska.gov); Neb. Rev. Stat. § 77-2010, 2026.
Nebraska’s county-level collection means an heir with property in multiple counties may owe tax apportioned across each, a wrinkle that overlaps with ancillary probate for out-of-state property and can complicate an otherwise simple estate.
Modeling a $500,000 Inheritance Across All Five States
Abstract rates obscure the real cost, so model one transfer everywhere. Take a $500,000 inheritance and route it to three different beneficiaries — a child, a sibling, and a non-relative — in each taxing state. The spread is the whole story.
Children pay $0 in all five states. That single fact explains why most Americans never encounter these taxes at all. The burden concentrates on siblings and non-relatives, and the dollar figures climb fast once you leave the exempt classes.
Modeled by Real Cost Report using published 2026 state rates; Kentucky Class C top-rate estimate. Source: state revenue departments (verify at taxfoundation.org).
Kentucky and Maryland both exempt siblings, so a sibling’s $500,000 costs nothing there — a striking contrast to Pennsylvania’s $60,000. Nebraska’s 1% sibling rate over the $100,000 exemption produces just $4,000. These are not rounding errors; they are five-figure differences driven purely by geography and relationship, and they compound with tax implications of selling inherited property when heirs liquidate rather than hold.
What Most People Get Wrong About Inheritance Tax
Misconceptions here are expensive, because they lead families to plan for the wrong tax entirely. Three mistakes surface again and again.
First, people conflate inheritance tax with the federal estate tax and assume their estate is too small to matter. The federal estate tax exemption is $15 million per individual in 2026 under the One Big Beautiful Bill Act — but a Pennsylvania sibling owes 12% on a $50,000 bequest regardless. The consequence is a surprise bill on a modest estate; the fix is to check your state’s inheritance rules independently of the federal threshold.
Second, heirs assume a revocable trust shields assets from inheritance tax. It does not — the assets remain part of the taxable transfer. The consequence is wasted planning dollars and no tax saving; the correct action is lifetime gifting or Class-A-directed bequests, and for larger estates, coordinating with probate avoidance strategies and their costs.
Third, families overlook the beneficiary’s relationship when writing a will. Leaving $300,000 to a close friend in New Jersey triggers roughly $45,000 in Class D tax that leaving it to a child would avoid entirely. The consequence is a tax bill the decedent never intended; the fix is to map every bequest to its class before finalizing the document, ideally alongside the cost basis step-up at death and maximization analysis.
Is Relocating to Avoid Inheritance Tax Worth It?
Some retirees weigh moving out of a taxing state purely to spare their heirs. The math only justifies it in narrow cases, and the trigger is almost always the beneficiary, not the estate size.
If your heirs are children or a spouse, relocation buys nothing — they already inherit tax-free in all five states. The calculus changes only when a substantial bequest is destined for a sibling, niece, friend, or partner. A $1 million transfer to a non-relative in Pennsylvania costs $150,000; the same transfer from a no-tax state costs $0. That is a real number worth planning around.
But relocation carries its own costs — establishing bona fide residency, retitling property, and abandoning a home and community. For most families, targeted planning beats moving: shifting bequests toward exempt heirs, gifting during life (Pennsylvania and Nebraska impose no gift tax), or using life insurance, whose proceeds to a named beneficiary are generally exempt. Weigh those tools against the probate attorney and executor fees by state your estate will face regardless, and against the probate duration by state and complexity that shapes when heirs actually receive funds. Consider relocation worthwhile only when a large, non-relative bequest and a genuine desire to move already coincide.
Frequently Asked Questions
Do children ever pay inheritance tax?
In the five states that levy an inheritance tax in 2026 — Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — children are exempt or nearly so. Pennsylvania is the one wrinkle: it taxes lineal descendants, including children, at 4.5% with no exemption. The other four fully exempt children. So a child inheriting $500,000 pays $22,500 in Pennsylvania but $0 in the rest.
What changed for Kentucky in 2026?
Effective January 1, 2026, Kentucky exempted all Class B beneficiaries — nieces, nephews, aunts, uncles, sons-in-law, daughters-in-law, and great-grandchildren — from inheritance tax. Previously, per the Kentucky Department of Revenue, those heirs paid 4% to 16% above a $1,000 exemption. Only Class C beneficiaries (cousins, friends, unrelated parties) still owe tax, at 6% to 16% above a $500 exemption.
Which state has both an estate and inheritance tax?
Maryland is the only state imposing both. Its inheritance tax is a flat 10% on non-exempt beneficiaries, and its estate tax applies to estates above $5 million. Close relatives — spouses, children, parents, grandchildren, and siblings — are exempt from the inheritance tax, so in practice the 10% rate falls on distant relatives, friends, and unmarried partners.
Does the federal estate tax affect inheritance tax?
No — they operate independently. The 2026 federal estate tax exemption is $15 million per individual under the One Big Beautiful Bill Act, and there is no federal inheritance tax. A beneficiary can owe state inheritance tax on a modest bequest while the estate sits far below the federal threshold, because the two taxes measure different things: the estate versus the individual transfer.
How We Researched This Article
Real Cost Report built every figure in this guide from primary state and federal sources, verified in 2026. State inheritance tax rates, exemptions, and beneficiary classes were drawn from the official revenue departments of Kentucky, Nebraska, New Jersey, and Pennsylvania, and cross-checked against statutory citations including 72 P.S. § 9116 (Pennsylvania), Neb. Rev. Stat. § 77-2010 (Nebraska), and N.J. Stat. § 54:34 (New Jersey). Federal estate tax figures reflect the exemption set by the One Big Beautiful Bill Act for 2026.
Comparative state counts and top-rate rankings were corroborated against the Tax Foundation’s state estate and inheritance tax data, and current-year legislative changes — Kentucky’s Class B exemption and Iowa’s completed phase-out — were confirmed through AARP’s state tax coverage and Forbes reporting on 2026 death taxes.
Dollar costs on the $500,000 and $200,000 transfers are modeled, not measured: they apply each state’s published rates and exemptions to standardized bequest amounts and beneficiary relationships, so an individual’s actual liability will vary with deductions, prompt-payment discounts, and asset type. Kentucky’s Class C top-rate figure is an estimate applying the highest bracket to the full transfer above the exemption. Where sources reported figures mid-year — such as Washington’s estate-tax rate rollback effective July 1, 2026 — we noted the transition. This research was last conducted August 2026. All figures were verified against named primary sources before publication.