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Pennsylvania Inheritance Tax

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What Is Pennsylvania's Inheritance Tax?

Pennsylvania imposes an inheritance tax on persons who inherit property from persons who are not closely related to them. The tax rate is dependent on their familial relationship. However, some exceptions may apply.

Inheritance tax is collected when the deceased is either:

A resident of Pennsylvania; or
A person who owns real or tangible property in Pennsylvania.

Exemptions for Farms and Businesses

Pennsylvania does have special exemptions for farms and businesses. To use the tax exemption for farmland, the farm must:

be left to family members,
produce at least $2,000 yearly gross income,
continue to be used for agricultural purposes for seven years.

To use the tax exemption for small businesses, the business must:

Be wholly owned by the decedent and his/her family,
be left to family members and stay in operation for seven years,
have been in existence five years prior to the death of the decedent,
have less than 50 employees,
have less than $5 million in assets,
the principal purpose of the business cannot be management of income producing assets.

Tax Rates

Pennsylvania has 4 tax rates based upon the inheritor’s relationship with the decedent.

No tax – There are a select few who do not have to pay inheritance tax. Those include:

Surviving spouse
Parents who inherit from children who were 21 or younger at the time of death
Charitable organizations and government entities

4.5% - Pennsylvania carved out a Class A group of people who pays a 4.5% tax rate. Relative to the decedent, those people include:

Lineal descendants (i.e. children, grandchildren, great grandchildren, etc.)
Parents and grandparents
Spouse of a child
Surviving spouse of a child, if the surviving spouse did not remarry

12% - Siblings of the decedent pay a 12% tax rate. This applies irrespective of whether the sibling is adopted or half-blood.

15% - All other inheritors pay a 15% tax rate.

When Is Tax Collected?

The executor of the estate must file a tax return for the decedent within 9 months of his death. Only one tax return is needed even if there are multiple people inheriting. The tax must be paid out of the decedent’s estate prior to distribution of the estate. If the tax is not filed within the 9 months deadline, then an extension may be filed and a penalty will be assessed.

Consulting an Attorney

If you are concerned with inheritance tax or would like to potentially reduce the amount owed, please consult an estate lawyer. He will help you straighten out your affairs for your peace of mind and to lower your beneficiaries’ tax obligations.

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Last Modified: 06-22-2015 08:57 PM PDT

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