The federal gift tax rate is a flat 40 percent, but most people never pay it

The gift tax rate is 40 percent on the value of money or property you give away. However, this rate only applies to gifts above a threshold amount, and that threshold is high enough that most individual givers never reach it. In 2024, you can give away $18,000 per person per year without triggering any tax paperwork or owing anything. If you give more than that in a single year to one person, you file a form — but you still may not owe tax.

The reason most people do not pay gift tax is the lifetime exemption. You have a total amount you can give away over your entire life before the 40 percent rate applies. That lifetime total is $13.61 million in 2024. When you give a gift over the annual threshold, you use up part of your lifetime exemption instead of paying tax that year. You only owe the 40 percent tax when your lifetime gifts exceed $13.61 million.

State gift taxes are separate and vary widely. Some states have no gift tax at all. Others tax gifts at rates between 3.5 and 16 percent, with their own annual thresholds and lifetime limits. You need to check your state's rules separately from federal rules.

Key Takeaways

  • The federal gift tax rate is 40 percent, but it only applies to gifts above $18,000 per person per year (in 2024), and only after you have used up your $13.61 million lifetime exemption.
  • Gifts under $18,000 per person per year require no tax filing and do not count against your lifetime exemption.
  • When you give more than $18,000 to one person in a year, you file Form 709 with the IRS, but you do not pay tax unless your lifetime total exceeds $13.61 million.
  • State gift tax rates and thresholds differ from federal rules and range from zero to 16 percent depending on where you live.
  • The annual threshold and lifetime exemption amounts change each year based on inflation; check the IRS website for the current year's numbers.

How the annual threshold and lifetime exemption work together

The $18,000 annual threshold (for 2024) is the amount you can give to any one person in a calendar year without filing a gift tax return. You can give $18,000 to your child, $18,000 to your spouse, $18,000 to a friend — all in the same year — and owe nothing and file nothing. The threshold resets on January 1 each year.

If you give $25,000 to one person in a year, the $7,000 over the threshold does not disappear. Instead, it counts against your lifetime exemption of $13.61 million. You file Form 709 to report it, but you do not pay tax. You simply reduce your lifetime exemption from $13.61 million to $13.603 million. You can keep giving away money this way — filing forms but paying no tax — until your lifetime total reaches $13.61 million. Only then does the 40 percent rate kick in on gifts above that point.

The lifetime exemption is portable between spouses. If you are married, you and your spouse can combine your exemptions, so your household lifetime total is $27.22 million (in 2024). This means married couples can give away much larger amounts before any tax applies.

What triggers the need to file a gift tax return

You must file Form 709 (Gift Tax Return) with the IRS if you give more than $18,000 to a single person in a calendar year. You file it with your regular tax return (Form 1040) by April 15 of the following year. The form tells the IRS how much you gave and to whom.

There are exceptions to this rule. Gifts to your spouse are not limited and do not require a return, as long as your spouse is a U.S. citizen. Gifts that pay someone's medical bills or tuition directly to the provider also do not count toward the threshold — you can pay unlimited amounts this way without filing. Gifts to charities do not trigger gift tax either.

Filing Form 709 does not mean you owe money. It means you are reporting a gift and using part of your lifetime exemption. The IRS tracks your cumulative gifts across your lifetime. If you never exceed $13.61 million in total gifts, you never pay the 40 percent tax, even if you file many forms over the years.

State gift tax rates and rules

Nine states have their own gift tax: Connecticut, Delaware, Illinois, Louisiana, Mississippi, New York, North Carolina, Tennessee, and Vermont. The rates and thresholds vary. Connecticut taxes gifts at 12 percent on amounts over $25,000 per year. Delaware taxes at 12.8 percent on amounts over $12,500. New York taxes at 3.06 to 16 percent depending on the size of the gift.

Some states have no gift tax at all, which means you can give away any amount without owing state tax. If you live in a state with a gift tax and give a large gift, you may owe both federal and state tax on the same money. You file separate forms for each. The state form is usually due at the same time as your federal return.

A few states have repealed their gift tax in recent years but kept an estate tax. This means gifts during your lifetime are not taxed, but money left in your will may be. The rules are specific to each state and change periodically, so check your state's tax department website for current rules.

How the 40 percent rate applies once you exceed the exemption

Once your lifetime gifts total more than $13.61 million, every additional dollar you give away is subject to the 40 percent federal gift tax. This means if you have given away $13.61 million and then give $10,000 more, you owe $4,000 in federal gift tax on that $10,000.

In practice, this affects only very wealthy people. The lifetime exemption is high, and it applies to all gifts combined — not to gifts to a single person. You would have to give away tens of millions of dollars over your lifetime to owe this tax. Most people with substantial wealth use strategies like trusts, annual gifts to family members, and charitable donations to manage their giving without triggering the tax.

The 40 percent rate is the same whether you give $1 million or $100 million over the exemption. There are no brackets or graduated rates for gift tax, unlike income tax. Once you are over the exemption, every dollar is taxed at 40 percent.

How inflation changes the annual threshold and exemption each year

The $18,000 annual threshold and $13.61 million lifetime exemption are adjusted for inflation every January 1. The IRS announces the new amounts in late November or early December of the prior year. This means the numbers you use depend on the year you make the gift.

In 2023, the annual threshold was $17,000 and the lifetime exemption was $12.92 million. In 2024, those numbers rose to $18,000 and $13.61 million. In 2025, they will likely be higher again. If you are planning large gifts, check the IRS website in December to see what the next year's thresholds will be. Timing a gift to fall just under the new threshold can save you paperwork.

The lifetime exemption is set to drop significantly after 2025. Under current law, it will fall to roughly $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress changes the law. This is a major reason some wealthy people accelerate their giving in 2024 and 2025 — to use the higher exemption while it lasts.

Frequently Asked Questions

Do I owe gift tax if I give money to my child?

Not unless you give more than $18,000 per year to that child (in 2024). Gifts under that amount require no tax filing and no tax payment. If you give $25,000, you file a form but still owe no tax unless your lifetime gifts exceed $13.61 million. Gifts to children are treated the same as gifts to anyone else.

What if I give my spouse money — do I owe gift tax?

No. Gifts to a spouse who is a U.S. citizen are unlimited and never trigger gift tax, no matter the amount. You do not file a return for these gifts. This is called the marital deduction. If your spouse is not a U.S. citizen, different rules apply and you should consult a tax professional.

Can I split a gift with my spouse to avoid filing?

Yes. If you and your spouse agree to split a gift, you can each give up to $18,000 to the same person in the same year without filing. For example, you can give $18,000 and your spouse can give $18,000 to your child for a total of $36,000, and neither of you files. You must both agree to the split before making the gift, and you file Form 709 if either spouse wants to report it (though neither owes tax).

What if I give someone money to pay their medical bills or tuition?

Gifts that pay medical expenses or tuition directly to the provider do not count toward the annual threshold or lifetime exemption. You can pay unlimited amounts this way. The payment must go directly to the doctor, hospital, or school — not to the person. If you give the person money and they pay the bill, it counts as a regular gift.

Will the gift tax rate change in the future?

The 40 percent rate is set by law and unlikely to change soon. However, the lifetime exemption is scheduled to drop to roughly $7 million per person on January 1, 2026, unless Congress extends the current law. The annual threshold will continue to adjust for inflation each year. Monitor IRS announcements for changes.