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Estate Tax vs. Inheritance Tax

The terms get used interchangeably, but estate tax and inheritance tax are separate levies with different payers, different rates and different state footprints.

By Priya Raman, Contributing Writer, Policy & Regulation
Updated June 17, 2026

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An estate tax is levied on the total estate before assets are distributed, paid by the estate itself. An inheritance tax is levied on the heirs after they receive their share, with rates and exemptions that vary by the heir's relationship to the deceased. The federal government imposes an estate tax; no federal inheritance tax exists. Six states impose an inheritance tax as of 2026.

Estate tax: paid by the estate

Under both the federal estate tax and state estate taxes, the executor calculates the taxable estate, files the return and pays any tax owed before distributing anything to beneficiaries. The tax reduces what the heirs receive, but the heirs themselves do not write the check. Federal estate tax applies above $15 million per person in 2026. About 12 states and DC have their own estate taxes, several with exemptions as low as $1 million.

Inheritance tax: paid by the heir

An inheritance tax is owed by the beneficiary after receiving assets. The rate and any exemption often depend on the relationship between the decedent and the heir: a surviving spouse typically owes nothing; children may owe a low rate; more distant relatives or unrelated recipients pay the highest rates. As of 2026, the six states with an inheritance tax are Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Maryland and New Jersey are unusual in imposing both an estate tax and an inheritance tax.

Practical impact for heirs

If you live in an inheritance tax state, or inherit from someone who did, you may owe tax on assets you receive even when the estate itself is below the federal threshold. Rates run from under 1% to 18%, depending on the state and your relationship to the decedent. Spousal inheritance is almost always exempt; close family members face low rates or none at all in most states.

FAQs

Do you pay estate tax or inheritance tax?

Which tax applies depends on where you live and where the decedent lived. Federal estate tax (if any) is paid by the estate before assets are distributed. State estate taxes work the same way. Inheritance taxes, levied in six states as of 2026, are paid by the beneficiary after receiving assets. You could potentially owe both types if you inherit from someone in a state that has both, like Maryland or New Jersey.

Which states have an inheritance tax in 2026?

As of 2026, six states levy an inheritance tax: Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. Maryland and New Jersey also have state estate taxes, meaning large estates in those states can face both. Surviving spouses are almost universally exempt. Rates and exemptions vary; check the specific state's rules or use the estate tax calculator.

Is money inherited from a parent taxable?

Federal income tax generally does not apply to inherited money or property; you do not include an inheritance in your gross income. However, the estate may have paid estate tax before distributing assets, reducing what you receive. Inherited retirement accounts (IRAs, 401(k)s) are a major exception: withdrawals from an inherited IRA are taxed as ordinary income. If you live in an inheritance tax state, you may owe state inheritance tax on the amount you received.

Do beneficiaries pay taxes on estate distributions?

Generally no, for most inherited assets. Cash, securities, real estate and other property inherited outright are not taxed as income to the beneficiary. The step-up in basis on inherited appreciated property means heirs who later sell pay capital gains only on appreciation after the date of death, not on the full gain during the decedent's lifetime. Inherited IRAs and other pre-tax retirement accounts are the main exception: distributions are taxable as ordinary income to the beneficiary.

Estate Tax vs. Inheritance Tax

See if your estate owes tax

Estate tax: paid by the estate

Inheritance tax: paid by the heir

Practical impact for heirs

More on state taxes

See if your estate owes tax

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FAQs