NOTE: State laws change frequently and the following information may not reflect recent changes in the laws. For current tax or legal advice, please consult with an accountant or an attorney since the information contained in this article is not tax or legal advice and is not a substitute for tax or legal advice.
Pennsylvania does not impose a separate state estate tax due to changes in the federal estate tax laws that phased out the state pick up tax effective for deaths occurring on or after January 1, 2005. However, Pennsylvania is among one of six states that collect a separate state inheritance tax on certain property owned by a Pennsylvania resident and real estate and tangible personal property located in Pennsylvania that is owned by a nonresident.
Estate Taxes vs. Inheritance Taxes - What's the Difference?
While it may just seem to be semantics, there is a real difference between an estate tax and an inheritance tax:
- An estate tax is charged against the entire estate regardless of who the beneficiaries of the estate may be.
- An inheritance tax is only charged against the shares of certain beneficiaries of an estate.
Which Beneficiaries Are Subject to the Pennsylvania Inheritance Tax?
Each beneficiary of a Pennsylvania estate receives, or does not receive, an exemption from the Pennsylvania inheritance tax based on the beneficiary's degree of relationship to the decedent. Here are the categories of beneficiaries and their applicable exemptions, or lack thereof, that are available under Pennsylvania law:
- Surviving spouses - For deaths occurring on or after January 1, 1995, transfers to a surviving spouse are entirely exempt from the Pennsylvania inheritance tax.
- Minor children - 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 entirely exempt from the Pennsylvania inheritance tax.
- Charitable beneficiaries - Transfers to exempt charitable organizations, exempt institutions, and government entities are entirely exempt from the Pennsylvania inheritance tax.
- Class A - 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 from the Pennsylvania inheritance tax.
- Class A1 - This class includes brothers, half-brothers, sisters, half-sisters, and persons having at least one parent in common with the decedent, either by blood or by adoption. Class A1 beneficiaries do not receive any exemption from the Pennsylvania inheritance tax.
- Class B - This class includes all other beneficiaries. Class B beneficiaries do not receive any exemption from the Pennsylvania inheritance tax.
Family Farms Are Exempt From Pennsylvania Inheritance Tax
For deaths occurring on or after June 30, 2012, working family farms and some related agricultural commodities are exempt from the Pennsylvania inheritance tax. Here is a summary of the new rules:
- The transfer of the farm land must be between members of the same family.
- The farm land must continue to be devoted to the business of agriculture for at least seven years beyond the transferor's date of death.
- The farm land must produce a yearly gross income of at least $2,000.
- If any tract of farm land that was initially exempt from the Pennsylvania inheritance tax is no longer devoted to the business of agriculture within seven years beyond the transferor's date of death, then the tax will be recaptured in the amount that would have been paid plus interest.
- Aside from land used for the business of agriculture, the transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve to lineal descendants or siblings is exempt from the Pennsylvania inheritance tax.
Is Life Insurance Included in a Pennsylvania Estate?
Payments received from a life insurance contract are exempt from the Pennsylvania inheritance tax whether they are paid to the estate or some other beneficiary.
What Expenses Can Be Deducted From the Value of a Pennsylvania Estate?
Certain expenses can be deducted from the value of a Pennsylvania estate, including:
- Funeral expenses
- Attorney's fees
- Personal representative and trustee fees
- Lawful debts owed by the decedent, including mortgages
- Certain unpaid taxes
What Are the Pennsylvania Inheritance Tax Rates?
The Pennsylvania inheritance tax rates are as follows:
- Class A beneficiaries, lineal tax rate: Class A beneficiaries are subject to a 4.5% inheritance tax.
- Class A1 beneficiaries, sibling tax rate: Class A1 beneficiaries are subject to a 12% inheritance tax rate.
- Class B beneficiaries, collateral tax rate: Class B beneficiaries are subject to a 15% inheritance tax rate.
What Pennsylvania Inheritance Tax Forms Must Be Filed and When Are They Due?
The estates of Pennsylvania residents need to file a Pennsylvania Inheritance Tax Return, Form REV-1500, on or before nine months after the decedent's date of death. The inheritance tax must also be paid within the same time frame, otherwise interest will begin to accrue.
The estates of nonresidents who own real estate and/or tangible personal property located in Pennsylvania need to file an Inheritance Tax Return Nonresident Decedent, Form REV-1737A, on or before nine months after the decedent's date of death. The inheritance tax must also be paid within the same time frame, otherwise interest will begin to accrue.
If the Pennsylvania inheritance tax is paid within three months of the date of death, then a 5% discount is applied.
An extension of time to file an inheritance tax return may be requested before the due date, but the granting of an extension will not relieve the estate from payment of interest which will accrue beginning nine months and one day from the decedent’s death on any tax ultimately found to be due and not timely paid. Mail the request for an extension to PA Department of Revenue, Bureau of Individual Taxes, Inheritance Tax Division-Ext, P.O. Box 280601, Harrisburg, PA 17128-0601.
Where Should Pennsylvania Inheritance Tax Forms Be Filed?
File the completed return for a resident in duplicate with the Register of Wills of the county in which the decedent was a resident at the time of death.
File the completed return for a nonresident with the PA Department of Revenue, Bureau of Individual Taxes, Inheritance Tax Division - Nonresident, P.O. Box 280601, Harrisburg, PA 17128-0601.
Where Can I Find Additional Information About Pennsylvania Inheritance Taxes?
For more information about Pennsylvania inheritance taxes, refer to the Pennsylvania Department of Revenue website.
Pennsylvania inheritance forms and instructions can be found on the Department of Revenue's website by following this link: Pennsylvania Inheritance Tax Forms and Instructions.