Pennsylvania does not have an estate tax. No matter the size of the estate, it will owe nothing to the state of Pennsylvania before the money is dispersed to heirs. There is a federal estate tax that may apply, and Pennsylvania does have an inheritance tax. If you think you might need help with estate planning or financial planning more generally, SmartAsset’s financial advisor matching tool can help you find an advisor in your area.
Pennsylvania Estate Tax
Pennsylvania is one of 38 states with no estate tax.
What Is the Estate Tax?
The estate tax is charged on the estate of a recently deceased person. The money is taken after the person has died but before the money is dispersed to their heirs. It is sometimes called the “death tax.”
The estate tax is different from the inheritance tax. Inheritance taxes are taken from a person’s heirs after the inheritance has already been passed on.
Pennsylvania Inheritance Tax and Gift Tax
Though there is no estate tax, there is an inheritance tax in Pennsylvania. The percentage paid depends on the relationship between the heir and the decedent.
No tax is applied to transfers to a surviving spouse or to a parent from a child under the age of 21. There is a 4.5% tax applied to transfers to direct descendants and other lineal heirs like grandchildren. There is a 12% tax on transfers to siblings and a 15% tax on transfers to any other heir, with the exception of charitable organizations, exempt institutions and government entities that don’t pay tax.
The Pennsylvania estate tax is owed by out-of-state heirs for real property and tangible personal property located in the Keystone State.
There is no gift tax in Pennsylvania. The federal gift tax has an exemption of $16,000 per recipient per year for 2022 and $17,000 in 2023. A gift worth more than this to one person in a year counts against your lifetime exemption of $12.92 million.
Federal Estate Tax
No estate will have to pay estate tax from Pennsylvania. There is still a federal estate tax. The federal estate tax exemption is $12.06 million in 2022 and $12.92 million in 2023. This exemption is portable. This means that with the right legal maneuvering a married couple can protect up to $25.84 million after both spouses have died.
If an estate exceeds that amount, the top tax rate is 40%. A full chart of federal estate tax rates is below.
Here’s how it works. Let’s say your estate is worth $22.92 million and you aren’t married. Subtracting the exemption of $12.92 million, creates a taxable estate of $10 million. Consulting the chart, you are in the top bracket. The base tax payment on the first $1 million is $345,800. The top rate of 40% applies to the remaining $9 million, which comes to $3.6 million. That sum is added to the base taxes of $345,800, meaning the total federal estate tax burden is $3,945,800.
|FEDERAL ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
*The taxable estate is the total above the exemption of $12.92 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Pennsylvania Tax Picture
Pennsylvania is a tax-friendly state for retirees. Social Security is not taxed, and neither are pensions or withdrawals from retirement accounts. Pennsylvania’s income tax rate is a flat rate of 3.07%, and local income taxes range from 0%-3.8398%. The average effective property tax rates in Pennsylvania is 1.36%. You can use this Pennsylvania paycheck calculator to calculate what your take home pay will be.
The sales tax in the Keystone State is 6% across the state with two exceptions. There is an additional 1% sales tax charged in Allegheny County (including Pittsburgh) for a total of 7% and a 2% surcharge in Philadelphia for a total sales tax of 8%.
Estate Planning Tips
- If you’re planning an estate or just looking to get help with financial planning in general, a financial advisor can be a big help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- When planning an estate, it is important to know everything you have in your portfolio, including any retirement accounts. This 401(k) calculator can show you what your account might be like when you’re ready to go into your golden years.
- Planning an estate is not just for the old. In fact, you should start thinking about your estate plan when you’re younger, so that you will be prepared as you move into your later years.
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