What you need to know about inheritance tax

On Behalf of | Feb 20, 2022 | Blog, Tax Issues

Pennsylvania does not have an estate tax. However, it does have an inheritance tax that applies to assets transferred upon death to someone other than a spouse.

When you are a beneficiary of property, the state’s inheritance laws impose a percentage of the asset’s value.

What assets are subject to inheritance tax?

For Pennsylvania residents, all real and tangible property is subject to an inheritance tax, including:

  • Bank accounts and cash
  • Furniture and jewelry
  • Automobiles
  • Stocks and bonds
  • Loans receivable

For those who are not residents, this tax applies to real and tangible property located in Pennsylvania at the time of your loved one’s death.

How does the state calculate the taxes you owe on an inheritance?

When you inherit assets, the tax amount you must pay depends on your relationship to the deceased:

  • 0% for property assigned to a spouse or a parent from a child under 21
  • 5% on assets given to direct descendants
  • 12% for transfers to siblings
  • 15% on property allocated to other heirs

Exemptions include jointly-owned property and assets given to government entities or charitable organizations.

Who files the inheritance tax return?

The administrator of an estate must file the return. However, if there is no personal representative or the executor will not file, you must do so. You need to file the return even if you do not owe any taxes. If you owe money, you can receive a discount by paying the tax early. Failing to file your inheritance tax return within nine months of the person’s death can result in a claim against the property.

It is essential to know the deadlines, file the appropriate tax returns, and understand which laws apply to you when you are an estate heir.