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PA Eliminates Tax on Some Parent to Child Inheritances

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Pennsylvania has now eliminated state inheritance tax on transfers from a parent to or for the use of a child age 21 or younger upon the death of the parent. This includes transfers from a natural parent, adoptive parent or stepparent.

Pennsylvania inheritance tax is imposed as a percentage of the value of most property transferred from a decedent at rates between 0% to 15%. The specific rate of tax depends on the relationship of the heir to the decedent. The inheritance tax rate on transfers from a parent to a child and other descendants is generally 4.5%.

The new law reduces the rate of tax on parent to child transfers to 0% if the child is age 21 or younger. This new 0% tax rate is established in Section 21 of Act 13 of 2019. Here is a link to Act 13 (House Bill 262).  The specific language of the new section reads as follows:

(1.4)  Inheritance tax upon the transfer of property to or for the use of a child twenty-one years of age or younger from a     natural parent, an adoptive parent or a stepparent of the child    shall be at the rate of zero per cent.

This change in the law mirrors a change that was enacted several years ago which set a tax rate of 0% on property transferred from a child aged 21 or younger to a natural parent, adoptive parent or step-parent. Transfers to a surviving spouse are also taxed at 0%.

Transfers to siblings bear a 12% tax rate; transfers to other heirs are taxed at 15% – except charitable organizations, exempt institutions and government entities which are exempt from tax.

The new 0% rate created by Act 13 applies to property transferred by a natural parent, an adoptive parent, or a stepparent who dies after December 31, 2019. (See Section 32 of the Act).

The legislation was introduced by Representative Carl Walker Metzgar who has stated that it is a step toward his goal of totally eliminating the Pennsylvania inheritance tax. According to the Center on Budget and Policy Priorities only 17 states and the District of Columbia tax inherited wealth.