Inheritance tax.

In plain English

Inheritance tax is a tax on what you receive when you inherit from someone who has died. Unlike the federal estate tax, it is charged to the individual heir, not the estate, and there is no federal inheritance tax at all. Only a small number of states levy one. In the states that do, the rate often depends on how closely related you were to the person who died: spouses are usually fully exempt, children and grandchildren are taxed lightly or not at all, and more distant relatives or non-relatives pay more. Whether you owe anything depends entirely on the state where the person who died lived, so the specifics are governed by state law.

01Why it matters

If you inherit from a relative in one of the few inheritance-tax states, you personally could owe tax on what you receive, so it is worth checking that state's rules before you assume the full amount is yours to keep.

02The math, step by step

Suppose someone dies in a state with an inheritance tax and leaves $50,000 to a niece. Because a niece is a more distant relative, she may owe the state a percentage of that gift, with the exact rate set by that state and tied to how closely related she was, while a surviving spouse inheriting the same amount would typically owe nothing. To find the actual rate, check the department of revenue for the state where the person who died lived.

03What this is NOT

04Receipts

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