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

The gift tax applies when you transfer something of value to someone else and receive nothing of equal value in return. The IRS treats gifts differently from other transfers — you cannot deduct a gift as a business expense, and the person receiving it does not report it as income. Instead, the tax falls on the person giving the gift.

The tax rate itself is not a flat percentage. Instead, the IRS uses a unified estate and gift tax rate that applies to the total value of gifts you give over your lifetime, above a certain threshold. That rate is currently 40 percent, but it applies only to gifts that exceed your lifetime exemption amount.

Most people never pay gift tax because the exemption is high. For 2024, you can give up to $13,610 per person per year without reporting it or using any of your lifetime exemption. If you give more than that to one person in a single year, you must file a gift tax return — but you still may not owe tax if you have not exceeded your lifetime limit.

Key Takeaways

  • The gift tax rate is 40 percent, but it applies only to gifts above your lifetime exemption amount, which is $13.61 million for 2024.
  • You can give $13,610 per person per year without filing a gift tax return or using any of your lifetime exemption.
  • Gifts to spouses, charities, and for medical or education expenses have different rules and may not trigger gift tax at all.
  • The annual exclusion amount changes each year based on inflation, so the threshold you need to report varies.
  • Filing a gift tax return does not automatically mean you owe tax — it means the IRS is tracking your lifetime total.

How the lifetime exemption works

The lifetime exemption is a pool of money you can give away over your entire life before the 40 percent tax kicks in. For 2024, that amount is $13.61 million. This means you could give away $13.61 million in total gifts (above the annual exclusion) and owe no tax.

The exemption is "unified," meaning it covers both gifts you make during your lifetime and money left in your estate when you die. If you use $5 million of your exemption on gifts now, only $8.61 million remains to shelter your estate from tax later. This is why the lifetime exemption matters even if you never expect to pay gift tax — it affects your overall tax planning.

The exemption amount is set by law and changes periodically. It was much lower in past years and is scheduled to drop significantly after 2025 unless Congress acts. The annual exclusion (the $13,610 per person per year amount) is separate and does not reduce your lifetime exemption.

What triggers the need to file a gift tax return

You must file a gift tax return (Form 709) if you give more than $13,610 to any single person in a calendar year, with certain exceptions. Gifts to your spouse and gifts to charities do not count toward this threshold. Medical payments made directly to a provider and tuition payments made directly to a school also do not count, even if they are large.

Filing the return does not mean you owe tax. It means you are reporting the gift to the IRS and, if it exceeds the annual exclusion, using part of your lifetime exemption. The IRS tracks these reports to ensure you do not exceed your lifetime limit.

If you are married and your spouse agrees, you can "split" gifts — treating a gift from you as if it came half from you and half from your spouse. This doubles the annual exclusion for that gift. Both spouses must file a return to report the split, even if neither owes tax.

Gifts that do not trigger tax at all

Certain gifts are completely exempt from gift tax rules. Gifts between spouses have no limit — you can give your spouse any amount without filing a return or using your exemption. Gifts to charities that may have access to under IRS rules are also unlimited and do not trigger tax.

Direct payments for someone else's medical care or tuition do not count as taxable gifts, even if they are very large. The payment must go straight to the medical provider or school, not to the person receiving care or education. If you give money to a person and they use it to pay tuition, that counts as a regular gift.

Payments for everyday expenses — such as helping a family member with rent or groceries — are gifts but do not require a return as long as they stay under the annual exclusion per person per year.

How the tax rate applies to large estates

The 40 percent rate applies only to the portion of your gifts (or estate) that exceeds your lifetime exemption. If you give away $14 million during your lifetime and your exemption is $13.61 million, the tax applies to $390,000. That means you would owe $156,000 in tax (40 percent of $390,000).

This is why the lifetime exemption is so important. For most people, it means they will never pay gift tax at all, because their total lifetime gifts and estate value stay well below the exemption. The 40 percent rate is high, but it applies to a very small number of people.

State gift taxes are separate from federal gift tax. Some states have their own gift tax with lower exemptions and different rules. If you live in or give property in a state with a gift tax, you may owe tax to that state even if you do not owe federal tax.

Changes to the exemption after 2025

The current exemption amount is temporary. Under current law, it is scheduled to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress changes the law. This means the threshold for owing tax will be much lower in future years.

If you are planning large gifts, the timing matters. Gifts made before the exemption drops use the higher 2024–2025 limit. Gifts made after 2025 will be measured against the lower limit. This is why some people with substantial wealth make large gifts now rather than waiting.

Tax law changes frequently, and the rules that apply to you depend on when you make gifts and when you die. Speaking with a tax professional or estate planner can help you understand how these rules affect your specific situation.

Frequently Asked Questions

Do I have to pay gift tax if I give money to my child?

Not unless the gift exceeds $13,610 per year and you have already used up your lifetime exemption. Most parents give well below this amount each year. If you do exceed it, you file a return but likely do not owe tax — you are just using part of your $13.61 million lifetime exemption.

What if I give someone a car or property instead of cash?

The same rules apply. The IRS values the property at its fair market value on the date you give it. A car worth $20,000 counts as a $20,000 gift. If it exceeds the annual exclusion, you file a return and may use your lifetime exemption.

Can I avoid gift tax by giving money anonymously?

No. The IRS does not care whether the recipient knows who gave the gift. If you give more than the annual exclusion to someone, you must report it on Form 709, regardless of whether the gift was anonymous or public.

Does my spouse's exemption add to mine?

Each person has their own $13.61 million lifetime exemption. A married couple can give up to $27.22 million combined before owing tax. You can also split gifts with your spouse to double the annual exclusion on a single gift.

What happens if I give away more than my exemption?

You owe 40 percent tax on the amount above your exemption. If you give $14 million and your exemption is $13.61 million, you owe $156,000 in tax. The person receiving the gift does not pay — you do as the giver.