Estate Tax vs. Inheritance Tax: What Actually Applies to Most Families

People often use “estate tax” and “inheritance tax” as if they were the same, and many worry they’ll owe one after a parent dies. For the great majority of families, the honest answer is that neither applies. Here’s how each works, how to tell whether yours might, and the one situation where an estate with no tax due still needs a return.

What’s the difference?

• Estate tax is imposed on the estate of the person who died, and it’s paid by the estate before assets are distributed. It’s the tax the federal government has, and some states have their own
• Inheritance tax is imposed on the person who receives the inheritance. There is no federal inheritance tax; a handful of states have one

How does the federal estate tax work in 2026?

The IRS’s Form 706 instructions for 2026 say the basic exclusion amount is $15,000,000. An estate must file Form 706 if the decedent’s gross estate, plus adjusted taxable gifts and any specific exemption, is more than that amount. Tax-education sources describe the amount as having been set by the 2025 federal budget law (the One Big Beautiful Bill Act), with annual inflation adjustments after 2026. The federal tax is imposed only on the amount above the exclusion, at rates that top out at 40 percent, according to NerdWallet. For a married couple, the exclusion can effectively double through portability, described below.

Two practical points:

• “Gross estate” is bigger than you may think. It generally includes more than what passes through probate; life insurance and retirement accounts the person owned can count. Lifetime taxable gifts are added in too
• The filing threshold isn’t the same as owing tax. An estate can be required to file and still owe nothing

What is portability, and why does it matter even if no tax is owed?

A married person’s unused exclusion can be passed to the surviving spouse. The IRS instructions say the executor can elect to transfer the deceased spousal unused exclusion (DSUE) amount to the surviving spouse, and that an estate must file Form 706 for this purpose regardless of the size of the decedent’s gross estate. That election can protect a surviving spouse from future estate tax if the survivor’s own estate grows.

The deadline matters. Form 706 is generally due nine months after death, with extensions available. For estates that weren’t otherwise required to file, IRS Rev. Proc. 2022-32 provides a simplified way to make a late portability election, by filing a complete and properly prepared Form 706 on or before the fifth anniversary of the death with a specific statement at the top of the form. A law firm notes that the relief is void if the estate turns out to have been required to file, so if you think this might apply, ask a professional promptly.

Which states have estate taxes or inheritance taxes?

Vanguard reports that five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. It lists twelve states with an estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. FedLaws and NerdWallet likewise report that Maryland is the only state with both, and FedLaws adds that the District of Columbia also has an estate tax.

Key points about state taxes:

• State thresholds are often far lower than the federal $15 million, so an estate that owes no federal tax can still owe state tax. Thresholds vary widely and change
• Inheritance tax rates often depend on the heir’s relationship. For example, Vanguard says Pennsylvania’s rates range from 0 to 15 percent depending on the recipient’s relationship to the person who died, and New Jersey has four classes of beneficiaries, some exempt and others subject to rates up to 16 percent. In many states, closer relatives pay less or nothing
• What triggers the tax is usually the decedent’s residency or where real estate is located, not where the heir lives, according to FedLaws. Someone who owned property in another state may owe tax there
• Texas isn’t on either list. If the person lived in a state without one of these taxes but owned real estate in a state that has one, ask an attorney about that state’s rules

These lists change, and some states have recently changed their laws, so confirm with your state’s department of revenue.

What should I do?

• If the estate is well under $15 million and there’s no surviving spouse, federal estate tax is unlikely to apply, but check state rules
• If there’s a surviving spouse, ask a professional whether to file Form 706 to elect portability
• If the estate is large, involves a business or farm, or has property in several states, work with an estate attorney and a CPA. See which tax forms an executor may need
• If you’re an heir, you generally don’t owe federal tax just for receiving an inheritance; see do you pay taxes on an inheritance?
• Remember income tax is separate, including capital gains on inherited assets, which are affected by the step-up in basis

This is general educational information, not tax or legal advice. Estate and inheritance tax laws change, and state rules, thresholds, and rates differ; the state lists here come from financial-education sources and should be confirmed with your state revenue department or an attorney.