What Are Gift Tax Rates and When Do You Have To Pay?

Caitlyn Moorhead
D-Keine / Unsplash
D-Keine / Unsplash

Most taxpayers, from individuals to married couples, are unfamiliar with the concept of the gift tax, which the government assesses on certain transfers of money or other assets from one person to another. The good news is that the gift tax doesn’t snag everyone. Even if you’re a generous person — and even if the gifts might otherwise be taxable — there are a few ways to legally avoid paying the tax.

Find Out: What To Do If You Owe Back Taxes to the IRS

What Is the Gift Tax and Do You Have To Pay Them?

The IRS definition of a gift is “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.” In other words, if you give money or property to someone else and don’t get anything back in return — or if you are paid less than the value of what you transfer — you’ve made a gift. Here are some other key takeaways:

  • If gift taxes are owed, the donor is the one responsible for paying them. Recipients are never required to pay a gift tax.

  • Under certain special arrangements, however, recipients can agree to pay the gift tax liability.

  • To avoid running afoul of tax laws, you might want to talk with a tax advisor if you’re going down this path.

  • If you have transferred money or property to someone and received no payment or compensation in return, this is considered a gift and is taxable if the value of the gift is over the gift tax limit.

  • The gift tax limit for 2023 was $17,000 which increased to $18,000 in 2024. Anything you’ve given over this for the tax year 2023 will have to be filed for in 2024.

  • Though you may not owe taxes to the Internal Revenue Service on every large gift you’ve given over the limit, you may have to file a gift tax return.

Gift Tax Exceptions

Not all gifts are subject to gift tax. The annual gift tax exclusion is per recipient, not per donor, meaning you can gift $18,000 in 2024 to as many people as you want and you’ll still remain under the annual exclusion amount.

If you have a spouse, the two of you can give away $36,000 per year to any recipient. There are also exceptions to the gift tax — the following are not considered taxable gifts:

  • Tuition for other people

  • Gift to IRS-approved charities or charitable organizations

  • Medical expenses for other people

  • Gifts to your spouse

  • Gifts to political organizations

Gift Tax Rate

The gift tax rate can go up to a maximum of 40% for taxable gifts exceeding the annual exclusion. As a taxpayer, you usually only pay gift tax on the amounts that exceed the allotted lifetime gift tax exclusion, which was $12.92 million in 2023 and $13.61 million in 2024. The lifetime gift tax exemption amount is subject to change annually.

To make sure your gifts of money, real estate or other assets don’t get heavily taxed, you should try and stay within the parameters of gift and estate tax rates. The value for estate tax exemptions is the same as the federal estate tax exclusion exemptions — $12.92 million in the 2023 calendar year and $13.61 million in 2024.

Lifetime Gift Tax Exemption

On top of the annual gift tax exclusion, the IRS grants a lifetime exclusion known as the unified credit. The unified credit is often used to shield descendants from estate tax, but it can also be used during a taxpayer’s lifetime.

If you stay within the parameters of the lifetime gift tax exemption, which is the amount of money or assets the government permits you to give away throughout your lifetime, you won’t have to pay taxes. This is also adjusted annually and in 2024, the lifetime gift tax exemption increased to $13.61 million from $12.92 million in 2023.

Final Take To GO

The bottom line is that you may not have been aware that if you give away too much money to someone you might have to pay tax on that gift. Keep in mind that both the gift tax limit and lifetime gift tax exclusion change annually so you may have to figure out when is the best time to transfer money or other assets to someone without paying more in taxes.

FAQ

Here are some answers to frequently asked questions about what gift taxes are and whether or not you have to pay them.

  • Can my parents give me $100,000?

    • Your parents can give you $100,000 but it is taxable as it exceeds the gift tax limit. If they each give you up to $17,000 in 2023 or $18,000 in 2024, it isn't taxed. However, any amount that exceeds that will need to be reported to the IRS by your parents and will count against their lifetime limit of $12.9 million as of 2023 or $13.61 million for 2024.

  • Can my parents gift me $30,000?

    • Yes, however, if your parents don't want to be taxed, they should each give you $15,000 individually to avoid having to pay a gift tax.

  • How does the gift tax work?

    • If you have transferred money or property to someone and received no payment or compensation in return, this is considered a gift and is taxable if the value of the gift is over the gift tax limit. The gift tax limit for 2023 was $17,000 which increased to $18,000 in 2024.

  • How much money can you gift a family member without paying taxes?

    • If you don't want to be taxed for large gifts here are the current gift tax limits:

      • The gift tax limit for 2023 was $17,000.

      • The gift tax limit for 2024 is $18,000.

John Csiszar contributed to the reporting for this article.

Data is accurate as of Feb. 19, 2024, and is subject to change.

This article originally appeared on GOBankingRates.com: What Are Gift Tax Rates and When Do You Have To Pay?

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