Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
Generally, beneficiaries do not pay income tax on money or property that they inherit, but there are exceptions for retirement accounts, life insurance proceeds, and savings bond interest. Money inherited from a 401(k), 403(b), or IRA is taxable if that money was tax deductible when it was contributed.
This means that when the beneficiary withdraws those monies from the accounts, the beneficiary will receive a 1099 from the company administering the plan and must report that income on their income tax return (and must pay income taxes on the sum).
Many states assess an inheritance tax. That means that you, as the beneficiary, will have to pay taxes when you receive an inheritance. How much you'll be assessed depends on the state you live in, the size of your inheritance, the types of assets included, and your relationship with the deceased.
Form 8971, along with a copy of every Schedule A, is used to report values to the IRS. One Schedule A is provided to each beneficiary receiving property from an estate. Form 8971 instructions PDF. This item is used to assist in filing Form 8971.
Immediately after receiving an inheritance, you should notify your local Social Security office.
The best way to avoid the inheritance tax is to manage assets before death. To eliminate or limit the amount of inheritance tax beneficiaries might have to pay, consider: Giving away some of your assets to potential beneficiaries before death. Each year, you can gift a certain amount to each person tax-free.
If you fail to pay the estate tax due, the IRS may charge you penalties and interest on the amount owed. Estates this valuable are typically complex to file returns for. It will likely take you longer than the initial nine months to gather the documents needed to start a return.
When you receive an inheritance, you must go through a process called probate to get the cash and other assets. During this process, the court will review the will, decide each asset's value and pay bills and taxes. After these steps, the court will distribute the inheritance to loved ones.
The executor of a decedent's estate uses Form 706 to figure the estate tax imposed by Chapter 11 of the Internal Revenue Code. Form 706 is also used to compute the generation-skipping transfer (GST) tax imposed by Chapter 13 on direct skips.
Any tax due will normally be taken out of the deceased's estate, and the executor will usually take care of it. This means you won't need to declare inheritance money to HMRC – an inheritance isn't classed as income, and therefore isn't taxable.
Deposit the money into a safe account
Your first action to take when receiving a lump sum is to deposit the money into an FDIC-insured bank account. This will allow for safekeeping while you consider how to make the best use of your inheritance.
Annual gift tax exclusion
The gift tax limit is $18,000 in 2024 and $19,000 in 2025. Note that this annual exclusion is per gift recipient. So, you could give away the limit to several different people in a single year and still not have to file a gift tax return and possibly pay the gift tax.
Income from working at a job or other source could affect Social Security and SSDI benefits. However, receiving an inheritance won't affect Social Security and SSDI benefits. SSI is a federal program that pays benefits to U.S. citizens who are over age 65, blind or disabled and who have limited income and resources.
Since SSI assets are capped at $2,000 for an individual and $3,000 for a couple, earning an inheritance is very likely to make you ineligible to continue receiving benefits. This is because SSI is a means-tested program designed to protect the most vulnerable Americans.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.
Therefore, inheritances do not impact eligibility, and no reporting requirements exist for inheritances or assets received. Before assuming an inheritance will forfeit your benefits, check which program you receive—SSI or SSDI.
Note that under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier's checks, treasurer's checks and/or bank checks, bank drafts, traveler's checks and money orders with a face value of more than $10,000 by filing currency transaction reports.
Many people worry about the estate tax affecting the inheritance they pass along to their children, but it's not a reality most people will face. In 2025, the first $13,990,000 of an estate is exempt from federal estate taxes, up from $13,610,000 in 2024. Estate taxes are based on the size of the estate.
The worst things you can do with an inheritance are spend it on assets you can't maintain, sit on it, or invest it all in one place. The wisest thing you can do is speak to a financial planner, preferably before you even inherit the money.
Beneficiary. A person who inherits property, money or other benefits from a will, insurance policy or trust.