When Pennsylvania residents first learn that the government imposes taxes even after death, many are confused or upset. After all, death is a natural and unavoidable part of life. It might seem unfair that the government takes a cut of your lifetime assets. This news can be a bit misleading, however.
Pennsylvania has specific laws that determine how to tax inheritance. Learning about these policies can help you and your beneficiaries rest at ease.
What is actually taxed?
In some cases, a federal tax will apply to the estate itself. The estate may or may not be exempt depending on the total market value of all assets. Estates with a low value are more likely to have no estate taxes. The federal government makes this decision based on inflation as well. Therefore, each year can have a different exemption limit than the previous year.
However, Pennsylvania does not have a local estate tax in addition to the federal tax rule. Rather, Pennsylvania follows an inheritance tax policy. This means that the amount of taxes depends on which beneficiaries will receive the assets. As a result, not everyone has to pay tax on their inheritance.
Who is exempt from inheritance tax?
Luckily, some beneficiaries will be able to receive the full amount of their inheritance. Spouses and children who are 21 years old or younger are completely exempt from this tax. Furthermore, if the gift is a family farm that meets certain requirements, the family member who receives the farmland and related equipment will also be exempt.
Other loved ones may qualify for a partial tax exemption. This includes grandparents and legal descendents, including adopted children.
End-of-life taxes are complex
Tax law can be a very confusing and complicated issue for decedents and beneficiaries alike. When a resident passes away, their estate must abide by a variety of state and federal laws. Some policies are so specialized that they can be easy to miss, which is why anyone concerned with end-of-life taxes should seek help when necessary.