Skip to main content
Pennsylvania and the Federal Estate Tax
Support GuidePennsylvania13 min read

Pennsylvania and the Federal Estate Tax

Pennsylvania has no state estate tax but does levy an inheritance tax on heirs. Learn the federal estate tax, the 2026 exclusion, and portability.

By Settled Editorial

Most Pennsylvania families will never owe any federal estate tax. Pennsylvania levies no state estate tax, so the only estate-level tax that can reach the whole estate is the federal one, and it touches very few estates. The exclusion is high enough that the overwhelming majority of estates pass to heirs completely free of estate tax.

Pennsylvania does add its own layer, but it works differently. Instead of an estate tax on the whole estate, Pennsylvania charges an inheritance tax on the people who receive the property, set by their relationship to the person who died. This guide explains the federal estate tax as it applies to Pennsylvania families, then draws a clean line between it and the Pennsylvania inheritance tax. It also covers the current federal exclusion, the portability election, what counts in the estate, and how the estate tax differs from the step-up in basis.

Two Different Taxes: Federal Estate Tax vs. Pennsylvania Inheritance Tax

The single most important idea for a Pennsylvania family is that two separate taxes are in play, and they behave in opposite ways.

The federal estate tax is charged to the estate as a whole, applies only to the value above the $15 million exclusion, and reaches almost no one.

The Pennsylvania inheritance tax is charged to each heir, applies with no exemption threshold, and reaches almost every estate. The rate depends entirely on who inherits, not on how big the estate is.

Because of that difference, the typical result for a Pennsylvania family is no federal estate tax and some Pennsylvania inheritance tax. A modest estate left to children owes nothing at the federal level yet still faces the 4.5% Pennsylvania rate on what the children receive.

Pennsylvania Has No State Estate Tax

Pennsylvania imposes no separate estate tax on the value of the estate itself. The state's old estate tax was a "pickup" tax that equaled the federal credit for state death taxes and collected only what the federal government already allowed as a credit, so it cost estates nothing extra. When federal law phased out that credit, the Pennsylvania estate tax became inoperative and no longer applies.

So at the state level, the tax to plan around is not an estate tax at all. It is the inheritance tax, described next.

The Pennsylvania Inheritance Tax Keyed to Who Inherits

Pennsylvania inheritance tax is a tax on the transfer of assets, and the rate turns on the recipient's relationship to the person who died. The Pennsylvania Department of Revenue sets these rates:

  • 0% for a surviving spouse.
  • 4.5% for direct descendants and lineal heirs, such as children and grandchildren.
  • 12% for siblings.
  • 15% for all other heirs, such as nieces, nephews, friends, and unrelated beneficiaries.

There is no exemption threshold, so the rate applies from the first dollar an heir receives, subject to specific exemptions Pennsylvania allows (for example, property owned jointly between spouses, and certain agricultural property). That is very different from the federal estate tax, which only starts once the estate crosses $15 million.

Timing also differs. Pennsylvania inheritance tax is due at death and becomes delinquent nine months after death, and paying within three months of death earns a 5% discount. For the rate categories, exemptions, and the payment calendar in detail, see the Pennsylvania inheritance tax guide.

The Federal Estate Tax Exclusion

The federal estate tax applies only to estates whose value exceeds the basic exclusion amount, the exemption threshold set by federal law.

For deaths in 2026, the federal basic exclusion is $15 million per person. That means:

  • One person can pass up to $15 million free of federal estate tax.
  • A married couple can shield up to $30 million using portability (covered below).
  • Only the amount above the exclusion is taxed.
  • The top federal estate tax rate is 40%.

The exclusion is indexed for inflation, so it rises in future years. Because the tax reaches only the amount over $15 million, the effective rate on an entire estate is always below 40%, and for the vast majority of Pennsylvania estates it is zero.

A Note on the 2026 Law

Many older estate planning documents warned that the exclusion would roughly cut in half at the start of 2026 under a sunset provision in the 2017 tax law. That sunset did not take effect. Under current federal law the exclusion is $15 million per person for 2026, indexed going forward. If your plan includes trusts or gifting programs designed around a lower exclusion, review it with your attorney, because the strategy may no longer be needed and could even work against you given the step-up in basis rules.

What Counts in the Gross Estate

The "gross estate" for federal purposes is broader than what passes through probate or is listed in a will. Under Internal Revenue Code Sections 2031 through 2046, it generally includes:

  • Real estate, bank and brokerage accounts, stocks, and bonds
  • Life insurance proceeds on a policy the decedent owned or controlled (ownership, not who the beneficiary is, drives inclusion)
  • Retirement accounts such as IRAs, 401(k)s, and 403(b)s
  • Business interests and closely held company stock
  • The decedent's share of jointly owned property
  • Assets in a revocable living trust
  • Certain gifts made within three years of death, particularly transfers of life insurance
  • Powers of appointment the decedent held

Someone with a paid-off Pennsylvania home, a large IRA, and a life insurance policy can have a gross estate far bigger than their probate estate, because most of those assets pass outside probate but still count for the estate tax. The gross estate is then reduced by debts, funeral and administration expenses, and the deductions below to reach the taxable estate.

Deductions That Shrink the Taxable Estate

Two deductions eliminate federal estate tax for most families, even wealthy ones:

Unlimited marital deduction. Property left outright to a surviving spouse who is a U.S. citizen passes free of federal estate tax with no dollar limit. This is why most married couples owe nothing when the first spouse dies. The tax is deferred, not erased, and can apply when the second spouse dies. Pennsylvania mirrors the spouse-friendly treatment on the state side with a 0% inheritance tax rate for a surviving spouse.

Unlimited charitable deduction. Property left to a qualified charity is fully deductible from the estate, dollar for dollar.

Debts, funeral costs, and estate administration expenses also reduce the taxable estate.

Portability: The Filing That Can Save a Spouse Millions

When the first spouse in a marriage dies, their unused federal exclusion does not vanish automatically. Under the portability election, the surviving spouse can claim the deceased spouse's unused exclusion, called the deceased spousal unused exclusion, or DSUE, and add it to their own.

Example. A husband dies in 2026 with a $4 million estate and uses $4 million of his $15 million exclusion. His remaining $11 million can transfer to his wife. She then has her own $15 million exclusion plus his $11 million, a combined $26 million shielded from federal estate tax.

Here is the trap: portability is not automatic. The executor must file IRS Form 706, the United States Estate Tax Return, to make the election. The return is due nine months after death, with a six-month extension available. Portability requires the filing even when the estate owes no tax and is far below the exclusion.

Many families skip Form 706 because "we do not owe anything." That choice can cost the surviving spouse a great deal if the couple's combined estate later grows past one exclusion. Filing solely to preserve portability is a straightforward step an attorney can handle. Note that this federal filing is separate from the Pennsylvania inheritance tax return.

When Form 706 Must Be Filed

File Form 706 when any of these apply:

  • The gross estate plus adjusted taxable gifts exceeds the exclusion (tax may be owed).
  • You want to elect portability to preserve the deceased spouse's unused exclusion.
  • The estate has generation-skipping transfers to allocate.

The return is due nine months after the date of death. Form 4768 grants an automatic six-month filing extension, but any tax owed is still due at the nine-month mark, since the extension covers filing, not payment. Form 706 is one of the more complex federal returns, so estates that must file it usually benefit from a CPA or estate attorney to document valuations, claim deductions, and elect portability correctly.

Gifts During Life and the Annual Exclusion

The federal gift tax and estate tax are unified: lifetime gifts and transfers at death share the same lifetime exclusion.

Annual gift exclusion. For 2026, you can give up to $19,000 per recipient per year without touching your lifetime exclusion or filing a gift tax return. A married couple can give $38,000 per recipient, and there is no limit on the number of recipients.

Gifts that never count. Some transfers are entirely outside the gift tax: amounts paid directly to a medical provider for someone's care, amounts paid directly to a school for someone's tuition, gifts to a spouse, and gifts to qualified charities.

Larger gifts. A gift above the annual exclusion uses part of your lifetime exclusion and requires IRS Form 709. Filing the return does not mean you owe tax; it simply records the gift against your lifetime amount. Pennsylvania has no separate state gift tax, but be aware that Pennsylvania pulls certain gifts made within one year of death back into the inheritance tax base, so lifetime gifting near the end of life does not always avoid the state tax. Because the interplay between gift tax, estate tax, inheritance tax, and capital gains can get complex, get advice before making large lifetime gifts.

Estate Tax Is Not the Step-Up in Basis

Two very different taxes get confused here, so keep them separate.

The federal estate tax is a transfer tax on the value of the estate at death. It applies only above the $15 million exclusion, so it reaches almost no one.

The step-up in basis is an income-tax rule that applies to nearly every inherited asset regardless of estate size. Under IRC Section 1014, an inherited asset's cost basis resets to its fair market value on the date of death. That lowers the capital gains tax the heir owes when they later sell. Pennsylvania is a separate-property state, so only the decedent's share of jointly owned property steps up. See the Pennsylvania step-up in basis guide for how the basis reset works and how Pennsylvania taxes any gain at its flat 3.07% income tax rate.

For the great majority of Pennsylvania families, the two taxes that actually matter are the state inheritance tax on what heirs receive and the step-up that limits capital gains when they sell, not the federal estate tax. If you sell an inherited home, our guide on selling inherited property in Pennsylvania walks through how the stepped-up basis limits the gain.

Practical Takeaways for Pennsylvania Families

Most Pennsylvania estates need no federal estate tax planning at all. The federal exclusion is high, so the state inheritance tax is usually the tax that actually shows up. The practical moves are usually these:

  1. Confirm you are under the federal exclusion. Add up everything, including life insurance you own and retirement accounts, not just probate assets. If the total is well below $15 million, no federal estate tax applies.
  2. Plan around the Pennsylvania inheritance tax instead. For most families this is the real state cost. Who inherits drives the rate, so review beneficiary choices and consider the 5% discount for paying within three months of death.
  3. Preserve portability for a married couple. If one spouse dies, consider filing Form 706 to lock in the unused federal exclusion, even when no tax is due. It is a low-cost safeguard.
  4. Lean on the step-up. Holding appreciated assets until death gives heirs a stepped-up basis. Gifting those same assets during life hands the recipient your old basis and wastes the step-up.
  5. Get help if the estate is genuinely large or complex. Business interests, farms, out-of-state property, blended families, or an estate approaching the federal exclusion are the cases where an attorney and CPA earn their fee.

To estimate what settling an estate costs in your county, use our Pennsylvania probate fee calculator, and see the Pennsylvania probate costs guide for how the pieces add up.

Frequently Asked Questions

Does Pennsylvania have an estate tax?

No. Pennsylvania has no state estate tax. It does levy a separate inheritance tax on the people who receive an inheritance, set by their relationship to the person who died: 0% for a surviving spouse, 4.5% for children and grandchildren, 12% for siblings, and 15% for other heirs. The only estate-level tax is the federal estate tax, which reaches only estates above the federal exclusion.

How much can I leave without owing federal estate tax?

For deaths in 2026, the federal basic exclusion is $15 million per person. A married couple can shield up to $30 million using portability. Only the amount above the exclusion is taxed, at rates up to 40%. The Pennsylvania inheritance tax is separate and has no exemption threshold.

Is the Pennsylvania inheritance tax the same as the federal estate tax?

No. The federal estate tax is charged to the whole estate above $15 million and reaches very few families. The Pennsylvania inheritance tax is charged to each heir based on their relationship to the person who died and applies to almost every estate. A family can owe Pennsylvania inheritance tax and no federal estate tax at all.

Do I need to file a federal estate tax return in Pennsylvania?

You must file IRS Form 706 if the gross estate plus lifetime taxable gifts exceeds the exclusion, or if you want to elect portability for a surviving spouse. It is due nine months after death, with a six-month extension available. The Pennsylvania inheritance tax return, Form REV-1500, is a separate state filing.

Is the step-up in basis the same as the estate tax?

No. The federal estate tax is a tax on the estate at death. The step-up in basis is an income-tax rule that resets an inherited asset's cost basis to its date-of-death value, which lowers the capital gains tax when you later sell.

Related Pennsylvania Guides

Sources

Last Updated: July 2026. This guide provides general information about the federal estate tax as it applies to Pennsylvania estates and about the separate Pennsylvania inheritance tax. Tax law is complex and changes frequently. Consult a tax professional or estate planning attorney for advice specific to your situation. It is not legal advice.