However, few taxpayers overall pay state inheritance taxes due to varying exemptions.( Iowa plans to fully phase out its inheritance tax by 2025.) As of 2023, these states are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.Additionally, although there is no federal inheritance tax, some states tax inheritances.Remember, though, that if the money you receive from an inheritance subsequently generates income, such as the interest from an interest-bearing account, those earnings may be taxable. That includes inheritances of cash, property, etc. The IRS doesn't consider inheritances to be taxable income. But ordinary income tax rates still apply to distributions for other than qualified medical expenses. If you are 65 or older, however, you can withdraw HSA funds for non-medical expenses without paying the additional tax penalty. Generally, distributions from your HSA for qualified medical expenses are tax-free, while HSA distributions used for other purposes are subject to an additional 20% tax penalty. Examples include employer-provided health insurance, up to $50,000 of group term life insurance provided by your employer, and employer contributions to your health savings account (HSA) if you have one. However, some other employer-provided benefits and fringe benefits are not taxable.
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