I just inherited a windfall. What are the potential tax consequences?

If you received a windfall from a loved one, you may wonder whether you need to pay an inheritance tax on your distribution.

“An inheritance tax is often used synonymously with estate tax. There’s a big difference. Estate tax applies to the entire estate of the deceased. Inheritance tax applies to the assets that a beneficiary receives from the estate,” says Mac Gardner, CFP®, founder of Finlittech.com in Tampa, Florida.

The great news is that the federal government doesn’t charge an inheritance tax. However, as of 2025, five states do: Pennsylvania, Maryland, Kentucky, Nebraska and New Jersey. Gardner says an inheritance tax bill amount depends mainly on the state itself.

Generally, the beneficiary is responsible for paying the tax — and working with a financial advisor to figure that out may be helpful. Here’s a breakdown of how each state of the five states tax an inheritance.

Pennsylvania

Pennsylvania is one of five states that charges an inheritance tax, which ranges from 0 to 15 percent.

All property belonging to a resident at the time of death is subject to an inheritance tax. Some examples of property include cash, vehicles, furnishing, stocks, bank accounts and other assets. In some cases, Pennsylvania taxes assets — such as tangible property within the state — belonging to residents located outside of the state.

Your relationship with the deceased person determines the amount of tax you can expect to pay. Here’s a breakdown of Pennsylvania’s inheritance tax rates.

If the benefactor dies with a will, the responsible party assigned will file the return and pay the taxes. However, if no administrator is named, the person receiving the property is required to file the return and pay the inheritance tax within nine calendar months after the person’s death.

Maryland

Inheritance taxes are imposed in Maryland on property passed from a decedent to their beneficiaries. At the time of distribution, inheritance tax is calculated based on the value. Both residents and nonresidents who own property within Maryland at the time of death are subject to the inheritance tax.

Among the five states, Maryland’s lowest inheritance tax rate includes the widest range of qualifying inheritors.

Some beneficiaries, such as children, parents, and siblings, are exempt from paying the tax. Also, some windfalls, such as certain life insurance proceeds and property with a value of $1,000 or less, are free from Maryland’s inheritance tax.

Here’s how Maryland charges an inheritance tax.

Maryland requires the inheritance tax return to be filed within nine months after the decedent’s date of death. You can request an extension if you need more time. If you don’t file a timely return, you may have to pay penalties of up to 10 percent.

Kentucky 

Inheritance taxes are also charged in Kentucky on the property of deceased residents. Property owned by a deceased person within another state, however, is exempt from inheritance taxes.

A state inheritance tax is also imposed on property owned by nonresidents at the time of their deaths. Like other states, Kentucky exempts or lowers inheritance taxes for close relatives. However, those who are taxed by the state are granted an exemption amount to reduce the tax burden. 

Here’s a breakdown of Kentucky’s inheritance tax rates. 

If there is an inheritance tax due, you must file a tax return within 18 months from the decedent’s date of death. If you fail to pay on time, interest and penalties could be assessed.

Nebraska

Any property owned by a Nebraska resident at the time of death is subject to an inheritance tax, including property located outside the state. Inheritance taxes are also imposed on nonresidential properties, but Nebraska offers some exemptions, similar to other states.

Nebraska does not tax inheritances passing to immediate and remote relatives under 22 years of age, for example. The exemption and tax rates depend on the relationship to the deceased person and are as follows:

Generally, Nebraska requires the named personal representative of the estate to submit the inheritance tax return. If there isn’t a named person, the beneficiary should file the tax return and submit taxes due.

If an inheritance tax is due, it must be paid within one year of the benefactor’s death. If the bill isn’t paid in time, interest will accrue until the amount is paid.

New Jersey 

The inheritance tax in New Jersey is based primarily on the relationship between the beneficiary and the deceased and the asset’s value. Rates range from 0 to 16 percent. A spouse, domestic partner, parent, child, grandchild or grandparent is exempt from inheritance tax. The tax rate is 16 percent for nieces, nephews, non-relatives and cousins.

Inheritance taxes are assessed regardless of whether a decedent lived in New Jersey or another state at the time of death. Those who own property in the state but are not residents are required to pay inheritance taxes.

Here’s how New Jersey taxes its inheritances: 

An inheritance tax return must be filed within eight months of the death of a deceased person. If any taxes are due, they must be paid within this time period.

Bottom line

Most people won’t have to pay inheritance tax on windfalls they receive from deceased loved ones. However, Gardner stresses the importance of understanding not only inheritance tax laws, but also federal and state tax laws concerning any amount received due to death. In some cases, it is possible to have to report interest or dividends from an inheritance even though a person won’t have to pay any state-imposed tax. If you receive a windfall, seek out a tax professional or attorney for your tax situation. You may also want to consult with a financial advisor.