Do I have to pay taxes on an inheritance in Washington state?

While there is no inheritance tax in Washington, but another state’s inheritance tax could apply to you. For example, in Pennsylvania, the inheritance tax applies if the dead person lived there, even if the inheritor lives out of state.

Inheritance tax and estate tax are often confused, but they are distinct types of taxes. Here’s how inheritance and estate taxes operate and what makes Washington state’s approach unique:

  1. Inheritance Tax:
    • Definition: An inheritance tax is levied on the beneficiaries of an estate based on the value of the inheritance they receive.
    • Washington State: Washington does not impose an inheritance tax. Beneficiaries who inherit property or money from an estate are not required to pay state taxes on their inheritance.
  2. Estate Tax:
    • Definition: An estate tax is levied on the total value of a deceased person’s estate before it is distributed to the beneficiaries.
    • Washington State: Washington does impose an estate tax, which is one of the few states in the U.S. to do so. The tax is based on the total value of the estate and is paid by the estate itself before assets are distributed to the beneficiaries.
    • Exemption Threshold: The estate tax in Washington applies to estates valued above $2.193 million (as of 2024). Estates below this threshold are not subject to the tax.
    • Tax Rates: The rates for the Washington estate tax range from 10% to 20% depending on the size of the estate.

Here are the key points regarding inheritance and estate taxes in Washington:

Washington state does not impose an inheritance tax.

This means that beneficiaries do not have to pay taxes on the amounts they inherit from an estate.

Washington does have an estate tax, which is imposed on the estate of the deceased if its value exceeds a certain threshold.

As of 2024, the estate tax exemption threshold is $2.193 million. Estates valued above this amount may be subject to state estate taxes, which are paid by the estate before distributions to beneficiaries.

On the federal level, there is also an estate tax, but it only applies to estates exceeding a much higher threshold (over $12 million as of 2024).

  1. Federal Estate Tax:
    • In addition to state-level taxes, there is a federal estate tax, but it applies only to very large estates (over $12 million as of 2024). This tax is also paid by the estate before any distributions.

To summarize, while beneficiaries in Washington state do not pay inheritance tax, large estates may be subject to state estate taxes if they exceed the exemption threshold. The estate itself, rather than the beneficiaries, would handle any estate tax obligations before distributing assets.

Unique Aspects of Washington State’s Approach

  • No Inheritance Tax: Washington stands out for not having an inheritance tax, aligning with most states but contrasting with the few states that do impose such a tax.
  • Lower Estate Tax Exemption: The exemption threshold for Washington’s estate tax ($2.193 million) is significantly lower than the federal threshold, meaning more estates might be subject to state estate tax than to the federal estate tax.
  • Progressive Estate Tax Rates: Washington’s estate tax rates are progressive, starting at 10% and reaching up to 20% for the largest estates, which is relatively high compared to some other states.

Practical Implications:

  • Estate Planning: Residents of Washington need to consider state estate tax implications when planning their estates, especially if their estate is close to or exceeds the $2.193 million threshold.
  • Tax Filing: Executors of estates that exceed the exemption threshold must file an estate tax return and ensure that the tax is paid before distributing the remaining assets to the beneficiaries.

In summary, while beneficiaries in Washington do not pay an inheritance tax, estates valued over $2.193 million are subject to the state’s estate tax, which must be accounted for in estate planning and administration.

Have questions? (206) 838-3800 — info@ygacpa.com

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