Which State tax should I pay on inheritance

[jjmillerx21]

My mother recently passed away and left me a portion of her TIAA traditional and CREF retirement account. I have decided to take the full amount out all at once but I am also willing to follow the 10 year rule if the tax issue becomes too complicated. It’s about 27K. I am active duty military and my leave and earning statement (LES) still has me as a legal resident of Pennsylvania for state tax purposes for my military pay, which isn’t taxed. I have not filed taxes there in a very long time. The paper work I got from TIAA has my legal residence stated in Virginia, based on the information my mother gave them. Virginia is where I currently live, work and own a home. I have never filed state tax’s in Virginia. Is this something I can choose which state to pay the taxes on the inheritance in or is there a state I have to claim that money in and how do I find out which one is best. The only information I found is that Pennsylvania has a 4.5% inheritance tax and Virginia does not but both would apparently required the distribution to be counted as income which would be subject to state income tax. From what I read, Pennsylvania would tax me twice and Virginia would tax me once. This is very confusing though and I’m not even sure I’m on the track. 

[AmyC]

1. Your military home of record is PA so PA is entitled to tax the income.  Under the Servicemember Civil Relief Act (SCRA) VA will only tax VA income. This is ordinary income with normal PA tax for whatever portion you decide to take now.

2. The PA inheritance tax is charged on the estate return. You didn't mention an estate. The executor is handling the estate return and will file it where the decedent lived and owned properties and give you a k-1 for any taxable distributions from the estate when it is settled.

I am very sorry for your loss.

[jjmillerx21]

• Thank you. i appreciate it.

I recently found this that may allow me to have the company withhold VA state taxes since I am stationed here and avoid having to switch all the paperwork. I called the company and they said everything is set up for VA state holding. Are you familiar with this change? 

The Veterans Auto and Education Improvement Act of 2022 allows active-duty service members and their spouses to choose where to file state income taxes. This law went into effect on January 5, 2023. 

How the law works

• Service members and their spouses can choose to file taxes in their legal residence, the spouse's legal residence, or the service member's permanent duty station.

[AmyC · Accepted solution]

Yes, the law did change in 2022. That is when the spouses were included and permanent duty stations. I read that the paperwork had your legal residence in VA not that you were stationed there and it  is your actual home.

In that case, you can file VA if that is easier. Remember, only the estate pays the inheritance tax.

MD has a little lower tax rate than VA in general - another reason I like it. They both have a graduated rate so that the more you make, the more you pay.

You have options. Thank you very much for your service and best wishes.

[jjmillerx21]

Thank you for information much appreciated!!! I am just going to allow the company to do the withholding for VA and file VA state taxes next year.