Pennsylvania currently doesn't impose a separate estate tax due to changes in the federal estate tax laws. However, Pennsylvania is one of seven states that assesses a separate inheritance tax on property owned by a resident and real estate and tangible personal property located in Pennsylvania owned by a nonresident. Each beneficiary receives an exemption from the inheritance tax based on the beneficiary's degree of relationship to the decedent. Here are the general rules that apply with regard to the Pennsylvania inheritance tax:
- Surviving Spouse - For deaths occurring on or after January 1, 1995, transfers to a surviving spouse are exempt from the inheritance tax.
- Minor Child - For deaths occurring on or after July 1, 2000, transfers from the estate of a child age 21 or less to the child's natural parent, stepparent, or adoptive parent are exempt from the inheritance tax.
- Charitable Beneficiaries - Transfers to exempt charitable organizations, exempt institutions, and government entities are exempt from the inheritance tax.
- Class A, Lineal Tax Rate - This class includes grandparents, parents, descendants (including natural descendants, adopted descendants and step-descendants), and an un-remarried spouse of a child. This class receives a $3,500 family exemption on certain types of transfers after which a 4.5% tax rate is imposed.
- Class A1, Sibling Tax Rate - Sibling beneficiaries include brothers or half-brothers, sisters or half-sisters; and persons having at least one parent in common with the decedent, either by blood or by adoption. Transfers to this class are taxed at the rate of 12%.
- Class B, Collateral Tax Rate - Transfers to all other beneficiaries are taxed at the rate of 15%.
- Certain expenses can be deducted, including but not limited to funeral expenses, attorney's fees, personal representative commissions, debts and taxes owed by the decedent, real property taxes, and mortgages.
- A Pennsylvania Inheritance Tax Return, Form REV-1500, must be filed and the inheritance tax paid within nine months of the decedent's date of death, otherwise interest and penalties will begin to accrue. If the inheritance tax is paid within three months of the date of death, then a 5% discount is applied.
This information is complements of the Pennsylvania Department of Revenue.
The bottom line - if you're a Pennsylvania resident and your estate is passing to someone other than your spouse, or if you're a nonresident who owns real estate and/or tangible personal property located in Pennsylvania and it's not passing to your spouse, then your beneficiaries may owe a Pennsylvania inheritance tax. Up next, Rhode Island estate taxes.
Update July 8, 2012: For a current look at Pennsylvania's inheritance tax, refer to Overview of Pennsylvania Inheritance Tax Laws.
- Understanding Death, Estate and Inheritance Taxes
- Pennsylvania Inheritance Taxes - What About Life Insurance?
- Pennsylvania Inheritance Taxes - Will They Stay or Will They Go?
- State Inheritance Tax Chart
- How to Calculate Your Federal Estate Tax Liability
- How to Reduce or Even Eliminate Your Estate Tax Bill