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Tax on Inheritance

2009-12-22 by Eva Rosenberg

Happy Chanukah, Merry Christmas, Habari Gani?

Today TaxMama hears from Joan in Minnesota, who asks. “How much money can you inherit in Minnesota without paying taxes on it? And if you do need to pay, what is the %?”

Dear Joan,

In the US of A, you can inherit as much money as there is in the whole world without paying taxes on it.

Heirs don’t pay tax. The estate does.

Now, if you inherit something other than money, like an IRA or retirement plan, annuity or Savings Bonds,
there is a good chance that you will have to pay INCOME TAX on all the earnings inside those accounts that were never taxed to the person who died.

The income tax rate will be at your highest tax rate when the income you’ve drawn is added to your normal income.

And remember, you can find answers to all kinds of questions about inheritances and other tax issues, free. Where? Where else? At TaxMama.com.

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# | Posted in Tax Quips | Comments » (5)

All Comments

Linda Dorfmont Says:
December 22nd, 2009 at 10:13 am

Some states still have inheritance tax which is a tax on the heirs. I settled an estate in Pennsylvania and the heirs living in PA had to pay a tax on the money they got. Most states don't have this since heirs vote and decedents don't. Somehow the estate paying tax is much more acceptable than the heirs themselves but the money comes out of the same pot.

CT Says:
December 22nd, 2009 at 12:08 pm

Exactly, comes out of the same pot. Seems misleading to say heirs don't pay…..

David Toelkes Says:
December 22nd, 2009 at 05:20 pm

From a quick Google search:

An inheritance tax is a tax paid by beneficiaries on assets they inherit. Minnesota no longer has an inheritance tax. It does, however, have an estate tax. An estate tax is levied on the estate of someone who dies, before the assets in the estate are distributed to the heirs and other beneficiaries.

Minnesota did not adopt the federal estate tax unified credit.

In Minnesota, an estate worth more than $800,000.00 must file an estate tax return and non-spouse heirs may be subject to Minnesota estate taxes.

Barry Hoggood Says:
December 22nd, 2009 at 10:00 pm

Comments about Inheritance vs Estate taxes were about as clear as "mud"..
Do heirs have to pay taxes in any state on inherited money OR has all the taxes already been paid by the Estate when the heir gets the "check"?

David Toelkes Says:
December 23rd, 2009 at 01:00 pm

An inheritance tax is an assessment made on the portion of an estate received by an individual. In all states, transfers of assets to a spouse are exempt from the tax. Eleven states still collect an inheritance tax on tranfers to some non-spouse heirs. They are: Connecticut, Indiana, Iowa, Kansas, Kentucky, Maryland, Nebraska, New Jersey, Oregon, Pennsylvania and Tennessee.