The short answer: not always. In Maryland, the tax liability on estate distributions varies in parallel to who is receiving them.
It is correct that Maryland imposes both estate and inheritance taxes. The estate tax is handled before distributions are made, and the inheritance tax comes into play afterward—but only for certain recipients. This distinction should be taken into consideration by the beneficiaries to prevent unexpected tax obligations.
Specific beneficiaries are never taxed under Maryland law as outlined below:
This group falls under what the state considers “exempt” heirs. In case someone belongs to one of these categories, their distributions pass free of Maryland inheritance tax.
Anyone not in the exempt category is generally subject to a 10% inheritance tax on what they receive as listed below:
This tax is calculated in accordance with the value of the property or funds distributed to them.
Not for inheritance tax. It should be noted that Maryland’s inheritance tax is applied based on relationship, not on the size of the estate. That said, Maryland does also have an estate tax that applies to estates exceeding $5 million. But that tax is paid by the estate itself before any distributions are made.
It should be recognized that the IRS does not treat inheritance as income. Cash received from an estate is not reported on a federal tax return. However, income generated from inherited assets—like interest or dividends as well as capital gains—is generally taxable.
Whether taxes are owed on an estate distribution depends less on the amount and more on who the recipient is. In Maryland:
If you are unsure of your status, schedule a consultation with our professional team at Watter CPA.
