Gift tax: How much is gift tax and who pays it?

Acts of generosity, such as gift-giving, can bring joy and fulfillment for both giver and receiver. But often larger gifts can also bring about several tax questions, such as “Are gifts taxable?” or “How much is gift tax and do I have to pay it?”

We’ll answer these questions and dig into all the details about gift taxes. Generally, the answer to “Do I have to pay gift tax?” depends on whether you are the donor or the donee.

The person receiving a gift typically does not have to pay gift tax unless the donee agrees to pay part or all the tax. The donor or giver, on the other hand, may be responsible for filing a gift tax return with the Internal Revenue Service (IRS) and paying federal gift tax.

And, about that other question, “Are gifts taxable?” The general rule is that all gifts are taxable gifts unless they fall under one of the exclusions detailed below. These include:

• Gifts not more than the annual exclusion amount for the calendar year,
• Tuition or medical expenses you pay for someone,
• Gifts to spouses if both spouses are U.S. citizens,
• Gifts to political organizations for use by the organization, and
• Gifts to certain exempt organizations.

Note: This post will only cover gifts and their tax implications, but you can find more about these related topics:

• Gifts of cash or assets aren’t deductible other than charitable gifts made to a qualified charitable organization that meets all the requirements for a deduction. For more on this topic, see the tax deduction rules for charitable contributions.
• Gift giving is different than estate taxes and inheritance tax. For more on this topic, see “Is your inheritance considered taxable income?”

Annual gift tax exclusion rules and exceptions

You may be wondering, “How much can you gift tax free? and “How much is gift tax?” Here’s how it works: If, during any year, your gift is more than the annual threshold, you must file a gift tax return on IRS Form 709 to report it as a taxable gift.

Any amount over the annual exclusion amount may count against the lifetime exclusion amount. You might not necessarily owe tax on the amount over the exclusion. However, your lifetime exclusion amount could eventually be reduced.

Gift tax limit 2024 (officially: annual gift tax exclusion 2024)

The giver will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $18,000 per recipient for 2024 (the annual gift tax exclusion for 2025 is $19,000.) This means a giver can give up to $18,000 per recipient per year without being required to file a gift tax return. The giver may also not owe gift tax due to the basic exclusion amount.

Note: You might see $18,000 referenced as the gift tax limit for 2024, but the terminology used by the IRS is the annual gift tax exclusion amount for 2024.

The annual exclusion amount allows for a specific amount of gifts to be given tax-free each year. Every year the amount adjusts for inflation. The gift tax exclusion only applies to gifts of present interests, not future interests. This means, upon gifting, the donee has an unrestricted right to the property or income from the property. Gifts of cash or property outright are gifts of present interest. A doner who contributes to a qualified tuition plan or QTP or Coverdell ESA on behalf of a designated beneficiary is also giving a gift of a present interest.

Gifts to minors

For tax purposes, gifts to minors are a gift of a present interest if:

• Both the property and its income may be expended by, or for the benefit of, the minor before the minor reaches age 21,
• All remaining property and its income must pass to the minor on the minor’s 21st birthday, and
• If the minor dies before the age of 21, the property and its income will be payable either to the minor’s estate or to whomever the minor may appoint under a general power of appointment.

Exceptions to the IRS gift tax rules

Some gifts of cash are not subject to the gift tax no matter their amount. Included in those exceptions are:

• Almost all monetary exchanges between spouses if, both spouses are U.S. citizens,
• All money paid directly to an educational institution to cover tuition, or
• All money paid directly to a medical institution to cover medical expenses.
• All money given to political organizations for use by the organization.
• All money given to certain exempt organizations provided that such organization is exempt from tax under section 501(a)

Direct gifts made to educational and/or medical institutions can be made on behalf of any person, not just a person related to the giver.

Annual gift tax exclusion 2024 amounts – Gifts to multiple parties

If you are making a gift to more than one person, the exclusion amount will apply to each person individually. For example, if you have two children and you give $18,000 to each one in 2024, your gifts totaling $36,000 ($18,000x 2) will not be subject to gift taxes. Additionally, if you are married, you can split all gifts made to others during the year between you and your spouse. That means you could give $18,000 and your spouse could give another $18,000 to each child without exceeding the annual exclusion. However, spouses who elect to split gifts typically must file gift tax returns.

There are two exceptions where only the donor spouse has to file a gift tax return. These exceptions only apply when only one spouse made all the gifts from their own separate property and if only one spouse made gifts of more than the individual gift exclusion amount but not more than the spouse’s combined gift exclusion amount. Other requirements also must be met for the exceptions to apply.

Gift tax rules for spouses and gift splitting

Another quirk in the gift tax rules is called “gift splitting” which allows a married couple to treat a gift to a third person as if each spouse had made one-half of the gift. This provides an opportunity for spouses to double the amount of the annual exclusion available for a gift.

An election is required to split gifts and when the election is made, it applies to all gifts made by the spouses during the year. This election is part of Form 709 where the spouses will check a box on Part 1, line 19 to indicate they made gifts to third parties. If they select “Yes,” they will complete Schedule A, which has them list the gifts made by a spouse separately from the gifts subject to gift tax.

Lifetime gift tax exclusion

In addition to the annual gift tax exclusion, gift givers should be aware of the lifetime exclusion amount. As the name implies, this amount refers to how much an individual can give during their entire lifetime. In some cases, you might see this called the lifetime gift tax exemption (or simply gift tax exemption), but the IRS refers to it as a lifetime gift tax exclusion.

As you gift to others during your lifetime, the reportable gifts (those over the annual threshold) will count against the lifetime exclusion. There is one gift and estate exemption, which is $13.61 million in 2024 ($13.99 million for 2025). Spouses have double the exclusion amount, $27.98 million for 2024. This means that you can give through present gifts or through your estate up to the lifetime exclusion amount before you will owe taxes on those amounts. As mentioned earlier, the excess gifts over the annual threshold will count toward the lifetime limit.

How to calculate gift tax

If you’re trying to understand how to calculate gift tax, an example can be an easy way to visualize it. Let’s say Cecelia gifts $20,000 to each of her four grandchildren in 2024. Since the annual gift tax exclusion amount for 2024 is $18,000, she’ll need to report the amount over the threshold, and it must be reported towards her lifetime exemption exclusion ($2,000 per grandchild).

Here’s the process step-by-step:

1. Subtract the annual exclusion amount: $20,000 – $18,000 = $2,000.
2. Multiply by the number of grandchildren: $2,000 x 4 = $8,000.
3. Report the total excess amount: $8,000 towards Cecelia’s lifetime exemption.

How much is gift tax?

How much tax you’ll pay on a gift depends on how much over the lifetime exclusion the gift is. Generally, the gift tax rate ranges from 18% to 40%.

Here’s how the rates work for gift tax purposes: any amount you give over the annual limit is subtracted from your lifetime gifts limit. Once you exceed the lifetime gift tax limit, you may begin to owe taxes. Your estate exclusion and gift exclusion are both considered in the lifetime exclusion amounts. So, if you don’t gift at all during your lifetime, the entire exclusion will be available for your estate to exclude when you die.

One consideration for the lifetime exclusion limit is the possibility that the limit will be lower after 2025. As described above, the lifetime exclusion is $13.99 million for 2025, but unless Congress acts in 2025 to adjust the lifetime exclusion limit, it is scheduled to automatically reset to $5 million (adjusted for inflation this would be closer to $7 million), which will significantly lower the overall lifetime limitation.

Get help with navigating gift tax and tax planning

Whether you need help navigating gift taxes and the tax implications of giving property a gift or need help filing your return, we’re here for you. Trust the expertise of H&R Block to help you file your taxes and get your maximum tax refund. Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.