Inheritance Tax Definition
An Inheritance Tax is a tax paid by the individual who inherits a deceased person’s property or money. Keep in mind that an inheritance tax is different from an estate tax. An estate tax is a tax imposed on a deceased individual’s assets.
There are two other types of taxes as well: indirect taxes and direct taxes (also known as an income tax).
Inheritance Tax Explained
Since there is a difference between an inheritance tax and an estate tax, most people commonly refer to them as death taxes.
The critical point here is that the tax is paid by the beneficiary or the person who receives the assets. For example, if your uncle passes away and he leaves you a million dollars, then you may have to pay an inheritance tax on the million dollars.
An estate tax is paid by the person who has passed away. This tax is paid before money is distributed to any heirs. The person in charge of executing the deceased individual’s will has to file taxes on behalf of the individual For example if your uncle passes and he leaves you a million dollars, then the executor of his will will pay an estate tax before giving you the money.
Death Taxes in the US
Please keep in mind that laws change all the time and this information may not be up to date or accurate.
The IRS collects an estate tax at the federal level. The exemption for this is quite high, so very few people end up paying. In addition to the federal tax, some states also charge an estate tax.
According to the Tax Foundation, Eighteen states and the District of Columbia impose either inheritance or estate taxes, with fourteen states (plus Washington, D.C.) levying estate taxes and six states levying inheritance taxes. Of these, two states (Maryland and New Jersey) impose both taxes, though New Jersey is in the process of repealing its estate tax.