As of 2018, you do not have to pay any taxes on an inheritance once it is under $11.18 million. This is because most states do not have a federal inheritance tax at all. However, six states: Nebraska, Iowa, Kentucky, New Jersey, Pennsylvania, and Maryland, do implement a state inheritance tax.
Two things that often get confused are estate taxes and inheritance taxes. Usually, the inheritance will not be directly deposited into your account. It will be in the form of stock in a company or physical real estate. Once the estate has paid and settled all of its financial obligations, the remaining assets go to inheritors. The tax that inheritors pay is the inheritance tax and each state operates differently so the amount of taxes will be different.
An estate tax is calculated based on the value of the estate that is being inherited. This is based on the size of the estate and where the deceased lived before they passed away. The executor of the estate, the person responsible for making sure that the deceased’s wishes are being followed, is responsible for making sure the estate pays these taxes. While the people receiving an inheritance from the estate are not responsible for paying estate taxes, the tax may affect the size of the inheritance that they receive.
Currently, only Washington D.C. and fifteen other states have federal estate taxes. Once your inheritance passes $11.18 million, you get taxed in increments based on how much you exceed $11.18 million. For example, If your inheritance exceeds $11.18 million by $0-10,000, you are taxed at 18%. If your inheritance exceeds by $10,000-$20,000, you are taxed at $3800 plus 20% of the amount over $20,000 and so on. It is important to consult a tax professional to determine the amount of tax you have to pay in that circumstance.
