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Understanding Pennsylvania’s Inheritance Tax

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Recently AOL released a story titled “Best states to die in…for taxes,” outlining the states where it is most costly for loved ones left behind when someone passes away. The story focused largely on the inheritance tax, which applies in Pennsylvania as well as five other states. What is this inheritance tax? How much is it, and who does it apply to?

Pennsylvania’s Inheritance Tax

In Pennsylvania, an inheritance tax is imposed to each share of an estate that is designated as an inheritance to a beneficiary. The beneficiary is responsible for paying this tax, although in some cases the estate may pay it for them. The inheritance tax is a state tax, not a federal tax, and the value of the estate is not a factor in determining inheritance tax. The value of one person’s inheritance on the other hand, matters a great deal.

Many people confuse Pennsylvania’s inheritance tax with an estate tax. The two are different, though. An estate tax is imposed against the value of an entire estate and beneficiaries are not taken into consideration. That tax is then paid by the estate. Pennsylvania does not have an estate tax, although the federal government does apply one.

Are All Beneficiaries Required to Pay the Inheritance Tax?

While an inheritance tax is something beneficiaries must pay, not all beneficiaries are subject to it. The surviving spouse of the deceased is exempt from paying the tax, as are surviving parents of children under the age of 21. Certain charitable organizations, institutions, and government entities are exempt from paying the tax.

These are the only people exempt from the inheritance tax in Pennsylvania. The remaining beneficiaries are then divided into categories, depending on the relationship they had with the deceased.

Grandparents, parents of individuals over the age of 21, and all descendants of these relatives, such as their children and grandchildren, are placed into Class A for the inheritance tax. While these individuals are still required to pay the inheritance tax, they are provided with a $3,500 exemption. This means that for that portion of their inheritance, they do not need to pay a tax. They will need to pay a tax of 4.5 percent on any inheritance over that amount.

Any beneficiary that has at least one parent in common with the deceased is placed into Class A1. This group can include brothers, half-brothers, sisters, and half-sisters. The relationship to the deceased can be biological, or adoptive. These individuals however, are not exempt at all from the inheritance tax. This group must pay a 12 percent inheritance tax.

All other beneficiaries are placed into Class B. These individuals are not exempt from the inheritance tax. They also pay the highest rate than any other classification. They are charged a 15 percent inheritance tax.

Need Help with an Estate? Contact a Scranton Estate Lawyer

When someone passes away, their loved ones don’t immediately think of the legal issues involved with their death. There are several though, and the state’s inheritance tax is just one of them. A Scranton estate planning lawyer can help anyone that is trying to settle an estate, and explain the many different laws that pertain to it.

If you’re trying to settle an estate, you likely have many questions. At Haggerty, Hinton & Cosgrove, LLP, we have the answers. Call us today at 570-344-9845 or fill out our online form and let us explain all the laws that apply to your case. These matters are intricate and complex, and we want to help make it easier for you.

Resource:

aol.com/article/finance/2019/04/04/best-states-to-die-in-for-taxes/23706685/#

https://www.haggertylaw.net/living-wills-advanced-directives-and-why-theyre-important/

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