What you need to know about Pennsylvania estate tax – timesherald
Pennsylvania is one of the few states that still imposes inheritance tax on the transfer of assets from a deceased person to his or her heirs. There is inheritance tax on inheritance and unlicensed assets. Assets subject to inheritance tax include all tangible and intangible property located in the State of Pennsylvania. This includes real estate, retirement accounts, investments, savings bonds, personal property, bank accounts, etc. If the deceased was not a resident of Pennsylvania but owned tangible property in the State, the assets of the State of Pennsylvania will be subject to inheritance tax.
The rates of inheritance tax depend on the relationship between the deceased and the natural person who receives the property. The tax rate for direct line heirs (children, stepchildren, grandchildren, etc.) is 4.5%. The rate for collateral heirs (such as siblings) is 12%. The tax for other heirs such as nieces and nephews or if no relationship is 15%. The surviving spouse of the deceased is taxed at 0%. Government entities and charities are exempt from inheritance tax.
As of January 1, 2020, transfers from a parent or step-parent to a child (including an adopted child) or step-son under the age of 21 on the date of death of the parent or step-parent will be taxed at the rate of 0%. It is important to note that this new law only applies to transfers from a parent or step-parent to a child under 21; transfers to all other descendants (including grandparents to grandchildren under 21) will continue to be taxed at the rate of 4.5%.
Pennsylvania does not tax the proceeds of life insurance. In addition, there are inheritance exemptions for specific situations and assets. For example, for people who died after January 1, 2020, who bequeath property to children under the age of 21, they are taxed at 0%. In addition, there is an exemption for the transfer of a “qualified family business interest” to one or more “qualified assignees” without being subject to PA inheritance tax on the death of the assignor.
The Pennsylvania estate tax return must be filed and tax paid within nine months of the date of the deceased’s death. However, it is important to note that if the inheritance tax is paid early, within three months of the deceased’s death, the Pennsylvania Department of Revenue grants a 5% reduction on the tax ultimately due. There are various deductions that can be taken from the total tax due. Therefore, it is important to keep careful records in an estate administration to ensure that you are maximizing the various deductions.
The legal advice in this column is general in nature, consult your lawyer for advice tailored to your particular situation.
Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elderly Lawyer by the National Elder Law Foundation, as licensed by the Supreme Court of Pennsylvania. She is a principal of the law firm of O’Donnell, Weiss & Mattei, PC, 41 High Street, Pottstown and 347 Bridge Street, Phoenixville, 610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at [email protected]