How Much Tax Do You Pay on Inheritance in NJ?

In New Jersey, the tax rate on inheritance varies based on the relationship between the beneficiary and the deceased. While some heirs are exempt from paying inheritance tax, others may owe up to 16%. Understanding these tax rates can help beneficiaries plan accordingly and avoid unexpected financial burdens.

Inheritance Tax Rates in New Jersey

New Jersey classifies beneficiaries into different categories, each with its own tax treatment:

Class A Beneficiaries – Exempt from inheritance tax. This group includes:
- Spouses
- Domestic partners
- Parents
- Grandparents
- Children (including stepchildren and adopted children)
Class B Beneficiaries – This classification no longer exists under NJ tax law.
Class C Beneficiaries – Subject to tax but at a reduced rate. This group includes:
- Siblings
- Sons-in-law and daughters-in-law
- Surviving spouses of deceased children
Tax rates for Class C beneficiaries are:
- 0% on the first $25,000 inherited
- 11% on amounts between $25,001 and $1,100,000
- 13% on amounts between $1,100,001 and $1,400,000
- 14% on amounts between $1,400,001 and $1,700,000
- 16% on amounts above $1,700,000
Class D Beneficiaries – This group includes all other individuals (e.g., friends, distant relatives, and non-related heirs). The tax rates are:
- 15% on inheritances up to $700,000
- 16% on inheritances exceeding $700,000
Class E Beneficiaries – Exempt from inheritance tax. This includes charities, religious institutions, and other tax-exempt organizations.

How Much Tax Do You Pay on Inheritance in NJ

Other Considerations

New Jersey does not impose an estate tax, but the federal estate tax may apply to estates exceeding $13.61 million (as of 2024). Additionally, life insurance proceeds payable to a named beneficiary are not subject to inheritance tax in NJ.

Planning for Inheritance Tax

To reduce tax liabilities, estate planning strategies such as gifting assets during one’s lifetime, setting up trusts, or designating tax-exempt beneficiaries can be useful. Consulting with a tax professional can ensure that the inheritance process is as tax-efficient as possible.