Gift tax is a federal tax on money or property you give to another person during your lifetime

The federal government taxes large gifts the same way it taxes income. If you give someone more than a certain amount in a single year, you may owe gift tax. The threshold changes yearly — in 2024 it is $18,000 per person per year, but this amount adjusts for inflation. The person receiving the gift does not pay tax; you do, if the gift exceeds the limit.

Most people never pay gift tax because the annual limit is high and most gifts fall below it. But if you give $25,000 to one child, or $50,000 split among five relatives, you cross the line and must report it to the IRS. You do not automatically owe money that year — instead, you use part of your lifetime exemption, which is much larger. In 2024, your lifetime exemption is $13.61 million. Once you exceed that over your lifetime, then you owe tax.

The rules are different for spouses, charitable donations, and medical or tuition payments made directly to providers. Those routes let you give far more without triggering any tax at all.

Key Takeaways

  • Gifts over $18,000 per person per year (in 2024) must be reported to the IRS on Form 709, even if you do not owe tax that year.
  • You have a lifetime exemption of $13.61 million (in 2024); gifts above the annual limit use up this exemption, and tax is only owed once the lifetime total is exceeded.
  • Gifts to your spouse, direct payments for someone else's medical bills or tuition, and charitable donations do not count toward the limit at all.
  • The annual limit and lifetime exemption both adjust for inflation each year, so the thresholds change.

The annual gift tax exclusion and how it works

The annual exclusion is the amount you can give to one person in one calendar year without reporting it to the IRS. In 2024, that amount is $18,000. You can give $18,000 to as many people as you want in the same year without filing anything — each person gets their own $18,000 allowance.

If you give one person $20,000, you have exceeded the limit by $2,000. That $2,000 does not disappear; it counts against your lifetime exemption. You must file Form 709 (the gift tax return) with the IRS to report it, but you will not owe tax unless and until your lifetime gifts exceed $13.61 million. The annual exclusion resets on January 1 each year.

Married couples can combine their exclusions. If you and your spouse both give $18,000 to the same child, that is $36,000 total, and neither of you has exceeded the limit. This is called gift splitting, but you must both consent to it and file Form 709 together to make it official.

Lifetime exemption and when you actually owe tax

Your lifetime exemption is a pool of money you can give away over your entire life before owing any gift tax. In 2024, that pool is $13.61 million per person. Every gift that exceeds the annual exclusion draws from this pool. Once you have given away more than $13.61 million total, any additional gifts trigger a 40% tax.

Most people will never reach this limit. You would have to give away roughly $750,000 per year for 18 years to exhaust it. The exemption is designed to let wealthy people transfer large amounts to heirs or charities without tax during their lifetime.

The lifetime exemption is set to drop significantly after 2025. Unless Congress acts, it will fall to roughly $7 million per person in 2026. This is why some high-net-worth individuals accelerate large gifts before the end of 2025 — they want to use the higher exemption while it lasts.

Gifts that do not count toward the limit

Certain gifts are completely exempt from gift tax rules and do not count toward your annual exclusion or lifetime exemption. These are called excluded gifts.

Gifts to your spouse are unlimited. You can give your spouse any amount of money or property without any tax consequence, as long as your spouse is a U.S. citizen. If your spouse is not a U.S. citizen, the annual exclusion is higher ($185,000 in 2024) but still limited.

Direct payments for medical care or tuition are also unlimited, but only if you pay the provider directly. If you pay the hospital or university directly for someone else's bill, that payment does not count as a gift and does not trigger tax. If you give the money to the person and they pay the bill, it counts as a gift. The payment must go straight from you to the medical provider or school — no middleman.

Charitable donations to may have access to organizations do not count as gifts and are not subject to gift tax. You may also deduct them from your income tax, though that is a separate benefit.

How to report gifts over the annual limit

If you give more than $18,000 to one person in 2024, you must file Form 709 (United States Gift Tax Return) with the IRS. You file it with your regular tax return on April 15 of the following year, or by October 15 if you request an extension.

Form 709 asks for the donor's name (you), the recipient's name, the date of the gift, a description of what was given, and the value of the gift. You also declare whether you are using gift splitting with a spouse. The form is straightforward if you have only a few gifts to report; it becomes more complex if you have given away property, investments, or business interests that require valuation.

Filing Form 709 does not mean you owe tax that year. It simply notifies the IRS that you have made a large gift and are using part of your lifetime exemption. The IRS tracks your cumulative gifts over your lifetime. Tax is only owed if your total lifetime gifts exceed $13.61 million.

State gift tax and other considerations

The federal government is not the only body that taxes gifts. A small number of states also impose their own gift tax. As of 2024, only Connecticut, Delaware, Illinois, Louisiana, North Carolina, and Tennessee have state gift taxes, though the rules and thresholds vary by state. If you live in one of these states, you may owe state tax on gifts even if you do not owe federal tax.

Most states have no gift tax at all. If you live in a state without gift tax, you only need to worry about federal rules. Check your state's tax authority website if you are unsure whether your state taxes gifts.

Gift tax is separate from income tax. The person who receives the gift does not report it as income and does not pay income tax on it. Gifts are not considered taxable income under federal law. This is one reason gifts are different from wages, bonuses, or other compensation.

How gift tax interacts with estate tax

Gift tax and estate tax are linked. Your lifetime exemption for gifts is the same pool as your exemption for estate tax — the tax owed when you die. If you use $2 million of your lifetime exemption during your life by making large gifts, your estate will have $11.61 million left to pass to heirs tax-free when you die (assuming the 2024 limit).

This is why some people use gifts strategically. By giving away money during their lifetime, they reduce the size of their estate and may lower the estate tax owed after death. However, this strategy only makes sense for people with very large estates — most people have no estate tax liability regardless of how much they give away.

If you die before filing Form 709 for a large gift, your executor must file it as part of settling your estate. The gift will be counted against your lifetime exemption, which affects how much your heirs can inherit tax-free.

Frequently Asked Questions

Do I owe gift tax if I give my child $25,000?

You do not owe tax that year, but you must file Form 709 to report the gift. The $7,000 over the $18,000 annual limit uses part of your $13.61 million lifetime exemption. You will only owe actual tax if your total lifetime gifts exceed $13.61 million.

What if I give someone money and they use it to pay their tuition?

That counts as a gift and is subject to the annual limit. To avoid the limit entirely, you must pay the school directly yourself. The payment must go from your account to the tuition office, not through the student.

Can my spouse and I each give $18,000 to the same person without reporting it?

Yes, if you both give from your own accounts. Each of you has your own $18,000 annual exclusion. If you want to combine your exclusions and give $36,000 from a joint account, you must file Form 709 together and elect gift splitting.

Does my state tax gifts if the federal government does not?

Only six states currently have gift taxes: Connecticut, Delaware, Illinois, Louisiana, North Carolina, and Tennessee. If you live elsewhere, state gift tax does not apply. Check your state's tax authority website to confirm your state's rules.

What happens if I do not report a large gift?

The IRS may assess penalties and interest if you fail to file Form 709 when required. The penalty is usually 5% per month of the unpaid tax, up to 25%. It is better to file the form even if you do not owe tax, because filing protects you from penalties and starts the statute of limitations for the IRS to audit.