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What Is An Inheritance Tax?
An inheritance tax is a type of tax that is paid on the value of property and money that passes to an heir when the original owner dies. The inheritance tax is not the same as the estate tax, although the two are often confused with one another. In the United States, the federal government does not impose an inheritance tax, although it does impose an estate tax. States have the option of imposing a state inheritance tax. The estate tax is collected by the IRS on behalf of the government. The estate tax is levied against the estate of the deceased as a whole, with the taxes paid out of the funds of the estate.
States have the option of imposing inheritance taxes against beneficiaries who receive assets or property from someone who is deceased. Not all states impose an inheritance tax. The exact tax rate of the inheritance tax depends upon the amount that is received by the heir. There are three forms of inheritance tax. With the accession tax, the tax is applied to the amount that the person receives over their full lifetime. With the annual inheritance tax, the tax is applied to the amount that a person receives in a given year. The inclusion tax depends upon the size of the bequest. An inclusion inheritance tax might also be combined with the other two forms of inheritance tax as well.
The inheritance tax is also sometimes referred to as the death tax. In states where an inheritance tax is collected, the children and spouses of the deceased may be taxed at rates that are lower than other people. An individual may specify in their will that they wish for their estate to pay for the cost of any inheritance tax that may be imposed upon one's heirs. This move can help heirs avoid the need to sell their inheritances in order to simply pay for the taxes that will be levied on their inheritances, particularly on high value items.
Currently there are 23 states that levy either an inheritance tax or an estate tax. Fifteen of the states levy what are known as pick-up taxes. Eight of the states levy an estate tax or an inheritance tax that is not tied to a federal pick-up tax. Two other states levy an estate tax as well as an entirely separate inheritance tax. Those two states are New Jersey and Maryland.
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