The gift tax is a federal tax on transfers of money or property to other people who are getting nothing or less than full value in return. Two factors determine how much you can give away before owing taxes on the gifted amount: the annual gift tax limit and the lifetime gift tax limit.
If you exceed the annual gift tax limit (also known as the annual gift tax exclusion), you must file a gift tax return with the IRS to report it. The amount of your contribution that exceeds the annual limit will then be subtracted from your larger lifetime gift tax exclusion. Once you exhaust your lifetime exclusion, you may begin to owe gift taxes.
The annual gift tax exclusion is a set dollar amount that you may give someone without needing to report it to the IRS. The threshold is typically adjusted to account for inflation each year. The 2024 annual gift tax exclusion is $18,000, up from $17,000 in 2023.
If you give away more than the annual exclusion amount in cash or assets (for example, stocks, land, a new car) to any one person during the tax year, you will need to file a gift tax return in addition to your federal tax return the following year.
That doesn’t mean you have to pay a gift tax — it just means you need to submit IRS Form 709 to disclose the gift.
- The annual exclusion is per recipient, not the sum total of all your gifts. That means, for example, that you can gift $18,000 to your cousin, another $18,000 to a friend, another $18,000 to a neighbor, and so on in 2024 without having to file a gift tax return in 2025.
- If you’re married, you and your spouse could each give away $18,000 in 2024 without needing to file a gift tax return in 2025. If you want to combine your annual exclusions to give someone $36,000, you can choose to take advantage of “gift splitting” Internal Revenue Service.
- Gifts between spouses are unlimited and generally don’t trigger a gift tax return. However, if the spouse isn’t a U.S. citizen, special rules may apply Internal Revenue Service.
- Gifts to qualified nonprofits are charitable donations, not gifts.
How the Lifetime Gift Tax Exclusion Works
In addition to the annual gift tax exclusion, you get a lifetime gift tax exclusion. This means that any amount that you give over the annual limit is subtracted from your larger lifetime limit. Once you’ve gifted over your lifetime amount, you may begin to owe taxes.
“Think about buckets or cups,” says Christopher Picciurro, a certified public accountant and co-founder of accounting and advisory firm Integrated Financial Group in Michigan. Any excess “spills over” into the lifetime exclusion bucket.
The gift tax return that you need to file if you exceed the annual limit simply keeps track of that lifetime exclusion. So if you don’t gift anything during your life, then you have your whole lifetime exclusion to use against your estate when you die.
How Much Can You Gift?
For 2024, the annual gift tax exclusion is $18,000, up from $17,000 in 2023. This means you can give up to $18,000 to as many people as you want in 2024 without any of it being subject to the federal gift tax. The gift tax is imposed by the IRS if you transfer money or property – worth more than an exempted amount – to another person without receiving at least equal value in return.
This could apply to parents giving money to their children, the gifting of property such as a house or a car, or any other transfer. There is also a lifetime exclusion of $13.61 million in 2024. For help with the gift tax or any other personal finance issues you may have, consider working with a financial advisor.
Annual Gift Tax Limits
The annual gift tax exclusion of $18,000 for 2024 is the amount of money that you can give as a gift to one person, in any given year, without having to pay any gift tax. This is up from $17,000 in 2023 and you never have to pay taxes on gifts that are equal to or less than the current annual exclusion limit. So you don’t need to worry about paying the gift tax on, say, a sweater you bought your nephew for Christmas.
The annual gift exclusion limit applies on a per-recipient basis. This gift tax limit isn’t a cap on the total sum of all your gifts for the year. You can make individual $18,000 gifts to as many people as you want. You just cannot gift any one recipient more than $18,000 within one year without deducting from your lifetime exemption. If you’re married, you and your spouse can each gift up to $18,000 to any one recipient, bringing the total to $36,000 in this scenario.
Read Also: When Can Retirees Stop Filing Tax Returns?
If you gift more than the exclusion to a recipient, you will need to file tax forms to disclose those gifts to the IRS. You may also have to pay taxes on it. If that’s the case, the tax rates range from 18% up to 40%. However, you won’t have to pay any taxes as long as you haven’t hit the lifetime gift tax exemption.
Lifetime Gift Tax Limits
Most taxpayers won’t ever pay gift tax because the IRS allows you to gift up to $13.61 million (as of 2024) over your lifetime without having to pay gift tax. This is the lifetime gift tax exemption, and it’s up from $12.92 million in 2023.
So let’s say that in 2024 you gift $218,000 to a family member. This gift is $200,000 over the annual gift exclusion, meaning you’ll need to report it to the IRS. However, you won’t immediately have to pay tax on that gift. Instead, the IRS deducts that $200,000 from your lifetime gift tax exemption. So assuming you never made any other gifts over the annual exemption, your remaining lifetime exemption is now $13.47 million ($13.67 million minus $200,000). The table below breaks down this example:
Example of Lifetime Exemption Limits
| Gift Value | $218,000 |
| 2024 Gift Tax Exemption Limit | $18,000 |
| Taxable Amount | $200,000 |
| Lifetime Gift Tax Exemption Limit | $13,610,000 |
| Remaining Lifetime Exemption Limit | $13,410,000 |
Most taxpayers will not reach the gift tax limit of $13.61 million over their lifetimes. However, the lifetime gift tax exemption becomes important again when you die and pass on an estate.
How the Gift Tax Works
The IRS defines a gift as “any transfer to an individual, either directly or indirectly, where full consideration is not received in return.” In other words, if you write a big check, gift some investments or give a car to someone other than your spouse or dependent, you have made a gift.
The IRS has a gift tax limit, both for the amount you can give each year and for what you can give over the course of your life. If you go over those limits, you will have to pay a tax on the amount of gifts that are over the limit. This tax is the gift tax.
In almost every case, the donor is responsible for paying gift tax, not the recipient. A recipient will only pay gift tax in special circumstances where he or she has elected to pay it through an agreement with the donor. Even though recipients don’t face any immediate tax consequences, they can face capital gains tax if they sell gifted property down the line.
There are two numbers to keep in mind as you think about gift tax: the annual gift tax exclusion and the lifetime gift tax exemption.
How to Calculate the Gift Tax
Just like your federal income tax, the gift tax is based on marginal tax brackets. And rates range between 18% and 40%. If you want to calculate the taxable income for gifts exceeding the annual exclusion limit, the table below breaks down the rate that you will have to pay based on the value of the gift.
2024 Gift Tax Rates
| Gift Value Above the Annual Exclusion Limit | Rate |
| Up to $10,000 | 18% |
| $10,000 to $20,000 | 20% |
| $20,000 to $40,000 | 22% |
| $40,000 to $60,000 | 24% |
| $60,000 to $80,000 | 26% |
| $80,000 to $100,000 | 28% |
| $100,000 to $150,000 | 30% |
| $150,000 to $250,000 | 32% |
| $250,000 to $500,000 | 34% |
| $500,000 to $750,000 | 37% |
| $750,000 to $1,000,000 | 39% |
| More than $1,000,000 | 40% |
Gift Tax and Estate Tax
The federal government will collect estate tax if your estate has a value of more than the federal estate tax exemption. The exemption for 2024 is $13.61 million. At the same time, the exemption for your estate may not be the full $13.61 million. You can only exempt your estate up to the amount of your remaining lifetime gift tax exemption.
So let’s say that you have lowered your lifetime exemption down to $10 million by making $3.61 million in taxable gifts over your life. The federal government would then tax any estate that you pass on to someone for all value over $10 million. In other words, the gift tax and estate tax have a single combined exclusion. Regardless of whether the gift is passed to the recipient before or after your death, it applies toward that same $13.61 million limit.
All of this means that one way to prevent taxation of any assets you pass on is to gift those assets in increments of $18,000 or less. This could take some planning on your part but it is completely legal. There are also some gifts that you never have to pay tax on.
What Gifts Are Safe From Taxes?
Taxable gifts can include cash, checks, property and even interest-free loans. It also applies to anything you sell below fair market value. For instance, if you sell your home to your non-dependent child for $175,000 when it’s worth $250,000, the $75,000 difference could be considered a gift. That surpasses the annual gift tax limit and thus is deducted from your lifetime gift tax limit.
What constitutes a gift that counts toward your gift tax limit is generally easy to understand. There are several things that the IRS doesn’t consider a gift, however. You can give unlimited gifts in these categories without facing a gift tax or having to file gift tax paperwork:
- Anything given to a spouse who is a U.S. citizen
- Anything given to a dependent
- Charitable donations
- Political donations
- Funds paid directly to educational institutions on behalf of someone else
- Funds paid directly to medical service or health insurance providers on behalf of someone else
There are, of course, a few exceptions to keep in mind. If your spouse is not a U.S. citizen, you can only give him or her $185,000 each year. Anything above that is subject to gift tax and counts against your lifetime limit.
Funds that cover educational expenses refer only to tuition. That does not include books, dorms or meal plans. You can skirt the gift tax by contributing to someone’s 529 college savings plan with a lump sum and then spreading it over five years for tax purposes. The IRS allows taxpayers to donate $75,000 into a 529 plan without paying tax or reducing the lifetime limit. The only caveat is that any additional gifts for the same recipient will count toward your lifetime limit.
Lastly, it’s important to note that charitable donations are not only exempt from gift tax, they may also be eligible as an itemized deduction on your individual income tax return.
How to File Your Gift Tax Return
The first step to paying gift tax is reporting your gift. Complete IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, on or before your tax filing deadline. Download the document, complete each relevant line and sign and date along the bottom. You then send the form in with the rest of your tax return.
You should complete Form 709 anytime you gift in excess of $18,000 – even if you’re within the $13.61 million lifetime limit for 2024. You’ll have to file a Form 709 each year you give a reportable gift, and each form should list all reportable gifts made during the calendar year.
If you live in Connecticut, you may also have to file a state gift tax return. These are the only states that have their own gift tax. In most cases, you can file a gift tax return on your own. If your transfers are large or complex, though, consider finding a financial professional.
The IRS allows every taxpayer is gift up to $18,000 to an individual recipient in one year. There is no limit to the number of recipients you can give a gift to. There is also a lifetime exemption of $13.61 million. Even if you gift someone more than $18,000 in one year, you will not have to pay any gift taxes unless you go over that lifetime gift tax limit.
You will still need to report gifts over the annual exclusion to the IRS via Form 709. The IRS will lower your remaining lifetime exclusion over time and then use that amount to determine how much of your estate you need to pay estate tax on.
7 Tax Rules to Know if You Give or Receive Cash
Whether you receive cash tips as part of your job in the gig economy or are giving a cash gift to a relative, you need to know when and how to report that money to the IRS. There are different rules and reporting requirements depending on whether cash is income or a gift, how much money changes hands and if you’re the giver or receiver.
“It’s not just cash,” says Nicole Rosen, an IRS-enrolled agent based in Wenatchee, Washington. Gifts of property – such as a car – can fall under the same rules. “That can be cash in the view of the IRS,” she says.
Here’s a closer look at each rule and how it might affect you:
You Don’t Have to Report Cash Gifts of up to $18,000 a Year
Cash gifts can be subject to tax rates that range from 18% to 40%, depending on the size of the gift. The person making the gift is responsible for reporting the gift to the IRS and paying any tax due but thanks to annual and lifetime exclusions, most people will never have to pay a gift tax.
In 2024, you can give gifts of up to $18,000 to as many people as you want without any tax or reporting requirements.
“That number changes annually,” Rosen says.
Since 2021, the annual exclusion limit has increased $1,000 each year, but future tax laws could change that. For now, the threshold is per person, meaning a couple can give a combined gift of up to $36,000 to each of their children in 2024, for instance.
“Gifting cash to family members can be a significant component of an overall estate plan,” says Scott Sturgeon, senior wealth advisor and founder of Oread Wealth Partners in Leawood, Kansas.
“Making tax-free gifts of cash or even other assets to family members while you’re living can be a great way for you to actually witness those family members benefit from those gifts,” he adds.
Some cash gifts, such as those people give to pay certain tuition or medical bills, are excluded from any tax requirement. To be eligible for this exclusion, however, you must give the gifts directly to the school or health care provider.
Excess Gifts Require a Tax Form
If a person’s gift exceeds the annual exclusion limit, they must file Form 709 with the IRS. But that doesn’t mean they’ll have to pay taxes. “It doesn’t necessarily generate a tax right away,” says Daniel Laginess, CPA and president of Creative Financial Solutions in Southfield, Michigan.
That’s because in addition to the $18,000 annual exclusion, there is a $13.16 million lifetime exclusion, per person, for gift and estate taxes as of 2024.
“The excess amount goes against the lifetime exemption,” Laginess says. That means if you make a gift larger than $18,000 to at least one person, the excess will be subtracted from your lifetime exclusion.
Married couples who file their tax returns jointly may also have to file a Form 709 – even if their gifts are less than $18,000. For instance, a husband and wife could each give $18,000 to their child but they would need to report the $36,000 to the IRS on Form 709 to properly split the gift between them.
Keep in mind that cash doesn’t actually have to change hands for a gift to have tax implications.
“If you’re paying for a wedding, that does trigger the gift tax,” Laginess says.
Parents who spend more than the annual exclusion amount on a wedding for a child should file a Form 709. Laginess says, however, that he has never seen the IRS come after a taxpayer for failing to report wedding expenses they paid for someone else.
The Donor Is Responsible for Gift Reporting and Taxes, Not the Recipient
When it comes to reporting gifts and paying any taxes due, the burden falls on the person making the gift. The recipient doesn’t have to do anything.
Depending on what the recipient does with the gift, there may be future tax implications, such as paying capital gains tax on an investment. But someone accepting money – even in excess of the annual exclusion amount – doesn’t have to worry about reporting it to the IRS.
“For documentation, it’s important to keep records of all these transactions in the form of account statements and any tax filings that may go with them,” Sturgeon says.
Cash may seem like an untraceable way to give and receive money, but IRS regulations still apply. Whether you’re giving a gift or paying a worker, make sure you understand these crucial rules.
