When a U.S. citizen passes away, several types of taxes may become relevant depending on the size of the estate, the relationship of heirs, and the state in which the deceased and heirs reside. Four central taxes worth mentioning are the federal estate tax, the state estate tax (if applicable), the state inheritance tax (if applicable), and income taxes on inherited assets. In this article, we elaborate on and compare inheritance tax vs estate tax. Here’s Profitjets breaking it down for you:
Table of Contents
Inheritance Tax Vs Estate Tax
What is the Estate Tax, and What is the Inheritance Tax? How do they Compare?
| Feature | Estate Tax | Inheritance Tax |
| Who pays | The estate | The heir or the beneficiary |
| Level | Federal + Some States | Only in some states |
| Based on | Total value of the estate | Amount inherited by each person |
| Applies before or after distribution | Before assets are distributed | After assets are received |
Estate and inheritance taxes are liable to be paid as per the IRS upon the transfer of wealth after someone dies. However, both taxes have key differences. Some of the key differences concern who pays the tax and how it’s calculated.
Key Differences at a Glance—Estate Tax vs Inheritance Tax
Estate Tax
A percentage of tax is levied on a deceased person’s total estate before transferring it to the legal heirs. Estate here includes land, buildings, cash, and any other assets at the time of death. It is a federal tax, and a few states also levy it.
The legal heirs are not due to pay the taxes; the estate is taxed (carried out by the executor), and the remainder is passed on/distributed to the heirs.
As of 2025, the federal estate tax exemption limit is $13.61 million. Married couples enjoy a higher exemption of $27.22 million.
Not every state charges the estate tax. Here is the list of states that charge estate taxes at varied rates.
Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia
Inheritance Tax
It is not a federal tax but a state-level tax imposed on inheritance.
Here, the legal heirs or beneficiaries have to file and pay taxes. The taxes are calculated based on the value/worth of what each heir receives.
As of 2025, the states that impose the inheritance tax are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
It is interesting to note that the rates vary based on the deceased’s relationship to them. For example, spouses and children often pay 0%, while distant relatives or unrelated people may pay 10–18% or more.
Who Pays the Estate Tax, and When is it Due?
The estate pays the tax before the assets are passed on to the heirs. More specifically, the executor or a personal representative calculates the worth of the real estate. The legal heirs do not have to pay the amounts; they receive the residue after tax payment.
When Does the Estate Tax Become Due?
The federal estate tax portion becomes due nine months after a person’s death. A six-month filing extension can be requested through Form 4768, but this is merely a filing extension, not an extension for payment. Failing to pay taxes within nine months of death incurs penalties and interest.
If state estate taxes are applicable, deadlines vary by state. Most follow the 9-month deadline, just like the federal tax, while some states have their own forms and extension rules.
How is the Estate Tax Filed?
IRS Form 706 is used to file federal taxes. It has details of
- Valuation of the estate
- Deductions: debts, expenses, charitable donations, etc.
- Tax calculation and payment details
Late payment and late filing penalties are payable.
Late payment results in interest accrued from the original payment date and a penalty of up to 25%.
Who Pays the Estate Tax?
The estate itself pays the estate tax, or more specifically, the executor pays taxes before the assets are passed on to the legal heirs.
When Is Inheritance Tax Due?
There are no specific federal taxes due for inheritance. The due date for the state inheritance tax varies from state to state, but it’s usually due 6 to 9 months after the date of death.
While some states offer discounts for early payment, others charge interest or penalties for late payments.
Considering there is typically more than one beneficiary, each beneficiary is due to file and pay the taxes separately unless the estate voluntarily handles them on their behalf.
How is Inheritance Tax Filed?
States usually require a specific inheritance tax return, documentation stating specifications of the inheritance, and payment of tax.
Who Pays the Inheritance Tax?
The individual recipient pays the inheritance tax, unlike the estate tax.
Each person who receives money, property, or other assets from a decedent is personally liable for paying any inheritance tax owed to their state.
Inheritance tax rates and exemptions often depend on the beneficiary’s relationship to the deceased.
- Spouses are typically exempt
- Children and grandchildren pay little to nothing
- Whereas, distant relatives and non-relatives are liable to pay higher rates
Would you like to know how your state treats inheritance tax and how to file it? Contact Profitjets for a case-specific understanding and taxation of both the inheritance tax and estate tax.
How much has the IRS collected through the estate tax and inheritance tax in recent filing years?
In FY2024, estate and gift tax revenue was approximately $32 billion. Each state reports its figures, but collectively they amount to a small fraction of federal estate tax revenue—typically hundreds of millions across the six states, not billions.
Since inheritance has a separate filing variation for each applicable state, and the estate tax also seems relevant, can hiring a professional help ease the process?
What are the Benefits of Hiring a Professional for Estate & Inheritance Tax?
1. Maximize Tax Savings & Apply Exemptions:
Professionals understand how to apply
- Federal estate tax exclusions
- Marital and charitable deductions &
- State-specific exemptions
They could reorganize the estate to reduce overall tax exposure. For instance, A CPA can help utilize the portability of unused estate tax exemption from a deceased spouse to save millions.
Disclaimer: This might be specific to certain scenarios. Not every case may have loopholes that reduce millions in tax liability.
2. Avoid Expensive Mistakes
Trying to file our taxes without professional help may lead to incorrect valuations, missed deadlines, or improper filings, which can further lead to
- IRS or state penalties
- Interest on unpaid taxes &
- Delays in settling the estate
3. File Forms Accurately
Forms like IRS Form 706 (Estate Tax) or state inheritance tax returns require specifications; improper filings may trigger audits or rejections
4. Efficient Handling of Deadlines
Professionals are seasoned to manage time-sensitive filings like:
- Federal estate tax becomes due within 9 months
- Inheritance tax returns are often due within 6–9 months
- And filing for Extensions when the need arises
5. Navigate Multistate Situations
In some complicated scenarios, it becomes necessary to hire a professional. For instance, if the decedent owned property or beneficiaries live in different states, a professional helps manage conflicting tax laws and coordinate across jurisdictions.
6. Asset Valuation & Appraisal Guidance
Taxable estate values require fair market appraisals; professionals help source proper appraisers and defend valuations when audited.
7. Peace of Mind During an Emotional Time
This is a sensitive time; you are better off delegating as much as you can after a death. A qualified professional handles the paperwork, communication, and compliance so that you can focus on family and healing.
Conclusion
Inheritance Tax vs Estate Tax: both are varied taxes; they are complex tax filings that become due in a few months after a person is deceased. It is a sensitive time for the family, and professionals best handle it. Profitjets is a taxation expert who advises and provides filing options. A trusted expert with 15+ years of experience with outsourced accounting and bookkeeping, CFO services, and more. Get in touch with us for professional, case-specific tax planning services.
Frequently Asked Questions
1. Is the estate tax the same as the inheritance tax?
No, estate tax and inheritance tax are different, as they differ in who is liable to pay the tax, how it’s calculated, and where it applies.
2. What is the federal exemption limit for the Estate Tax?
The federal exemption limit for the estate tax is $13.61 million as of 2025.
Married couples have a higher exemption of $27.22 million.
3. Is the inheritance tax a federal tax?
The inheritance tax is not a federal tax but a state-level tax imposed on inheritance.
4. How can a professional tax planner help me file my inheritance and estate taxes?
Professionals help avoid mistakes. Each state treats estate transfers differently, and the necessity of professionals is especially important when assets are moved interstate. Months after a relative passes are a time of grief, and delegating your tax planning needs to a professional may help you catch up on some much-needed rest and time to grieve.
