Death and taxes sure things in Pennsylvania, especially an inheritance tax most states have phased out
PITTSBURGH (KDKA) — If you've ever inherited anything in Pennsylvania, you know that the state government tries to take a piece of its value through an inheritance tax.
As KDKA money editor Jon Delano explains, turns out we are one of the few states left that do this.
No matter what you inherit from your parents, siblings, or friends, Harrisburg still wants you to ante up.
"Pennsylvania, unfortunately, in a lot of tax areas is an outlier relative to the rest of the nation," says Timothy Vermeer, a senior policy analyst with the Tax Foundation. "Pennsylvania is one of only six states that has an inheritance tax."
While 12 states tax the decedent's estate before assets are distributed to the heirs – that's an estate tax — most states have phased out the inheritance tax, which taxes the person inheriting as Pennsylvania does.
Thirty-four states, like Ohio and West Virginia, have neither tax.
"Many of those states are moving either to eliminate or reduce their rate or increase their exemption. Currently, Pennsylvania is not doing either of those," says Vermeer.
Under current law, spouses can inherit without paying a tax, but children must pay 4.5 percent of the value of the inherited assets, unless under 21 years old. Siblings pay 12 percent, and everyone else pays 15 percent.
"Nothing's more sure than death and taxes, and this is where Pennsylvania gets you both," says PA Rep. Valerie Gaydos, an Edgeworth Republican.
Gaydos says she is, once again, introducing her bill to eliminate the inheritance tax.
"Eliminating the tax or even reducing it is just the right thing to do to put Pennsylvania in more competitive space with other states," Gaydos said.
Vermeer says Pennsylvania's tax often requires those who inherit to sell off their loved one's gift to pay the tax.
"You end up having the destruction of the inherited capital because that individual now has to sell off part of the property to pay for something that they weren't initially expecting to have to pay for," Vermeer said.
Gaydos says the tax forces older people to move to tax-free states.
"What we're finding is a lot of parents are buying apartments, small places in Florida to claim as their residency, and then they're staying here, living with their children," says Gaydos.
You don't have to move that far. Ohio and West Virginia are among the many states with no inheritance tax. Gaydos says Pennsylvania should join its neighbors in eliminating a tax that was first levied here in the 1820s to build canals.
"Whenever government starts a tax, they always find a new reason to use that money," says Gaydos.
Getting rid of a tax that brings in $700 million in revenue won't be easy, but Gaydos says there's bipartisan support to at least reduce it or exempt relatives from its impact.
One idea pushed by the late state Rep. Tony DeLuca was to exempt the first $100,000 that an individual inherited. The bottom line: Death and taxes are still likely to be synonymous with Pennsylvania for a while.
