Which U.S. states tax inherited pension income or impose inheritance/estate taxes and what are the thresholds?

1. How estate vs. inheritance taxes differ and why pensions matter

Estate taxes are assessed against the decedent’s estate before distributions and are based on the estate’s taxable value, which typically includes pensions and other retirement accounts measured at their fair market value at death; Connecticut’s official guidance, for example, treats pensions and intangible assets as part of the decedent’s gross estate for state estate tax purposes ^[2]. Inheritance taxes are paid by beneficiaries on amounts they receive and are charged only in a small number of states; Maryland is unique in that it levies both an estate tax and an inheritance tax ^[1].

2. States that impose inheritance tax (who pays and general structure)

The five states that continue to levy inheritance taxes are Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, and in each the rates and exemptions vary by the beneficiary’s relationship to the decedent—close relatives typically pay lower rates or are exempt while distant relatives or unrelated heirs face higher rates and lower exemptions ^{[1] [4]}. Sources note specific quirks—Nebraska and Kentucky have low exemptions in certain beneficiary classes (Nebraska exempts smaller amounts for adult children and Kentucky gives very small exemptions to nieces/nephews in some classes)—but the precise dollar thresholds by class are state-specific and not fully enumerated across the reporting set ^{[4] [5]}.

3. Estate-tax states and illustrative thresholds

Many states maintain their own estate taxes with thresholds that are often much lower than the federal exemption; examples cited in reporting include New York (estate tax applies above roughly $7.35 million in 2026, with rates from about 3.06% to 16% and special “cliff” rules near the exemption), and Rhode Island (an estate tax that began at roughly $1.8 million in 2026 with rates up to 16% cited) ^[3]. Connecticut has tied its threshold to the federal level in recent years and treats estates above its threshold to a state estate tax—Connecticut historically treated pensions and other assets as part of the taxable estate ^{[4] [2]}. Oregon’s reintroduced estate tax has been reported with a $1 million threshold and rates rising between 10% and 16% across brackets ^[6]. These examples demonstrate that state thresholds range from roughly $1 million in some states to multimillion-dollar thresholds elsewhere ^{[3] [6]}.

4. The federal backdrop and why state rules still bite

The federal lifetime estate-and-gift exemption rose to about $15 million per person for 2026, which means most estates avoid federal estate tax, but that change does not nullify state estate or inheritance taxes that have far lower exemptions or different rules ^{[3] [7]}. Professional guidance and reporting repeatedly flag that state-level rules—both the identity of taxable assets (pensions count) and the dollar thresholds—remain binding irrespective of federal exemption changes ^{[8] [9]}.

5. Practical implications, uncertainties and limits of available reporting

For retirees and beneficiaries, the key takeaways are: pensions can be part of the taxable estate in states that tax estates ^[2]; five states impose inheritance taxes and many more impose estate taxes with thresholds that can be as low as roughly $1 million in some jurisdictions ^{[1] [6]}. The sources contain state-by-state charts and summaries but do not uniformly list every dollar threshold and bracket for every state in a single consolidated table within this dataset, so readers should consult state revenue departments or an estate-planning attorney for definitive current thresholds and for how pension payouts will be treated in a particular state ^{[4] [10]}.