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How does inheritance tax work in New Jersey?

On Behalf of | Sep 17, 2021 | Estate And Gift Tax Planning, Estate Planning |

New Jersey does not have a formal estate tax, but it does have something called inheritance tax. First established in 1892, the state’s inheritance tax comes into play when you die and leave assets to a predetermined beneficiary.

Per the New Jersey Department of the Treasury, how much inheritance tax your beneficiary must pay is going to depend on certain variables.

What determines the amount of tax imposed

Several factors determine how much inheritance tax your loved ones must pay after your death. These factors include your relationship with your beneficiary and the value of the assets you left him or her. Additional determining factors include the type of assets transferred and whether you lived in New Jersey or a different state.

What determines tax class

NJ.com reports that beneficiaries fall into different “tax classes,” and that tax class determines how much inheritance tax they must pay. There are four tax classes, Class A, Class C, Class D and Class E. The state repealed Class B in the 1960s.

Beneficiaries that fall into Class A do not have to pay inheritance taxes. Beneficiaries in Class C do not face taxes for the first $25,000 received. However, they do encounter inheritance taxes on anything received thereafter. Those in Class D must pay a 15% tax on the first $700,000 and 16% on anything over that amount. Class E beneficiaries, like Class A beneficiaries, do not have to pay inheritance taxes.

New Jersey is one of only six states nationwide to uphold an inheritance tax. The state’s inheritance tax rates fall between 11% and 16%, depending on circumstances.