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Understanding Pennsylvania inheritance tax

One of the common questions Pennsylvania residents ask when preparing their estate plans is, “how will my assets be taxed upon my death?” Most are delighted to know they do not have to worry about federal tax since Uncle Sam only imposes an inheritance tax on estates worth $11.18 million or more. However, the same cannot be said of the Pennsylvania inheritance tax. 

Technically, Pennsylvania inheritance tax is a tax levied on the beneficiary’s right to inherit property. This tax applies regardless of the decedent’s estate size. The amount of payable tax depends on the property’s value and the recipient’s relationship to the decedent. 

Pennsylvania inheritance tax rates

Traditionally, Pennsylvania’s inheritance tax has three tax rates:

  • A 4.5% tax rate applies to assets that go to lineal heirs. These include children, stepchildren and grandchildren.
  • A 12% tax rate applies to collateral beneficiaries such as siblings. 
  • A 15% tax rate applies to other heirs such as nieces and nephews.

However, Pennsylvania inheritance tax does not apply to the following inheritors:

  • The decedent’s surviving spouse
  • Government entities and charitable organizations

Parents, stepparents, and adoptive parents who inherit from the deceased child 21 years or younger are also exempt.

Properties that are eligible for inheritance tax in Pennsylvania

All the decedent’s tangible property, including but not limited to cash, furniture, automobiles, jewelry, antiques and more that are located within the state of Pennsylvania at the time of the decedent’s passing, are eligible for inheritance tax. All intangible property of a deceased resident, including bonds, stocks, loans receivable, bank accounts and more, are eligible for inheritance tax regardless of their location at the time of the decedent’s death.

If the decedent is a non-resident of the state of Pennsylvania, all their tangible and intangible properties located within the state will be subjected to inheritance tax upon their death. However, a non-resident’s intangible property is not eligible for inheritance tax if the property in question is not within the state. 

Pennsylvania is one of the few states that collect inheritance taxes on decedents’ property. If you are a resident of Pennsylvania or own assets in the state, then the people or entities that will inherit your property might be required to pay a tax on what they will inherit, depending on how they were related to you. 

 

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