Tax & income
Estate tax vs. inheritance tax: Definition, Formula and Example
An estate tax concerns a deceased person’s taxable estate or transfer, while an inheritance tax generally depends on what a beneficiary receives and applicable beneficiary rules.
Scope: U.S. distinction; example is fictional and does not use current state or federal exemption amounts.
Other names and related labels: Transfer-at-death taxes; Inheritance taxation.
How it works
The United States has a federal estate-tax system, while some states impose estate or inheritance taxes under their own rules. Domicile, citizenship, asset location, deductions, exemptions and the recipient’s relationship can affect the result. A beneficiary’s receipt is not automatically subject to federal estate tax at a flat rate.
Illustrative inheritance-tax arithmetic = taxable beneficiary transfer × assumed rate
This is not the U.S. federal estate-tax formula. Federal calculations can involve adjusted taxable gifts, credits and other provisions.
A hypothetical $100,000 taxable beneficiary transfer
Assume a fictional 5% inheritance-tax rate after all applicable exclusions.
- Tax: $100,000 × 5% = $5,000.
- Amount after this one tax: $100,000 − $5,000 = $95,000.
The hypothetical tax is $5,000; no actual state or federal liability is determined.
Fictional flat rate; no claim about current exemption thresholds, relationship classes or other taxes.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
A large inheritance is not itself a federal estate-tax calculation
Estate-tax liability is determined at the estate level under the relevant rules. Income earned by inherited assets, retirement distributions and basis rules are separate issues. Our estate tool does not model every state’s inheritance tax.
Explore with a calculator
- Estate Tax Calculator
Review the tool’s supported federal estate-tax year and explicit assumptions; not state inheritance-tax filing.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
Calculation methodology and review status · All glossary terms