A Short History of Estate Tax in Pennsylvania
Is there an estate tax in Pennsylvania? No. So, what does that mean for folks who live in or own property in Pennsylvania. Here’s an overview.
The history of estate tax in Pennsylvania is really a story about two related systems. One is the estate-level “pick-up” tax that came and went. The other is the state’s long-standing inheritance tax, which remains today.
No. For decades, many states—including Pennsylvania—tied their estate taxes to a federal credit known informally as the “pick-up” credit. Under this setup, states could collect up to the amount the federal system credited for state taxes, so the total bill to families didn’t increase; it just shifted who received it. In 2002, Pennsylvania briefly “decoupled,” freezing its rules to pre-2001 federal law to preserve revenue. A year later, the state “recoupled,” again matching the federal credit and allowing the estate tax to phase out as that credit disappeared in 2005.
Estate Tax in Pennsylvania vs. the Inheritance Tax
Today, there is no separate stand-alone estate tax in Pennsylvania. Instead, the state imposes an inheritance tax with rates based on the heir’s relationship. In fact, Pennsylvania was a pioneer, adopting the inheritance tax in 1826, initially on transfers to non-lineal heirs.
Transfers to spouses are taxed at 0%. Lineal heirs (children, parents, grandchildren) pay 4.5%. Siblings pay 12%, and most others pay 15%. Property passing between spouses is exempt, and certain agricultural transfers have been exempt since mid-2012.
Key Rate Changes That Shaped the Landscape
Several milestones define how the current system evolved:
- Spousal transfers fell to 0% for passings on or after January 1, 1995.
- The lineal-heir rate dropped from 6% to 4.5% for passings after June 30, 2000.
- Agricultural property meeting statutory rules became exempt for passings after June 30, 2012.
How the History of Estate Tax in Pennsylvania Still Influences
Understanding the path of estate tax in Pennsylvania helps explain today’s planning environment. The pick-up-credit era is why some residents still ask about a state estate tax. While rate reforms and exemptions illustrate how policy has shifted burdens over time.
Practically speaking, though, most Pennsylvania families plan around the inheritance tax. They do this by using accurate heir designations, keeping asset inventories current, and noting special exemptions that may apply.
(Learn More: Read about revocable trusts in Pennsylvania versus Nevada.)