Do I Need to Worry About the Gift Tax If I Pay $60,000 Toward My Daughter's Wedding?

For many Americans, offering a $60,000 gift to pay for a child’s wedding probably isn’t something to worry about from a tax perspective. You could owe federal gift taxes if your lifetime gifts are over the lifetime exclusion amount, though, but the limit is set quite high. More specifically, for 2024 it sits at $13.61 million per person, or $27.22 million for a couple. Outside of going beyond those caps, you can give as much as you like to anyone you like without paying the 18% to 40% federal gift tax.

You do, however, have to send the IRS a Form 709 reporting any gift over the annual limit, set for 2024 at $18,000 for a single person or double that at $36,000 for a couple. Remember that these figures are on a per person basis, meaning you can give $18,000 to as many individuals as you want without needing to file for it.

Do you have financial planning questions like this? Speak with a financial advisor today.

Understanding How the Gift Tax Works

With tax rates ranging from 18% to 40% depending on the amount, the federal government's 100-year-old gift tax is eye-catching, but in truth rarely comes into play. That’s because most gifts are tax-free because of the pure size of the annual and lifetime gift exclusions. The annual amount adjusts for inflation and is currently set at $18,000 per person or $36,000 for a couple for 2024. That means you can give $18,000 as an individual to as many people as you like in 2024 without even having to report it.

The lifetime exclusion, which also applies for the estate tax, is an even bigger deal. This currently sits at $13.61 million for an individual and $27.22 million for a couple. It refers to the total amount of gifts you can give during your lifetime or as part of setting your estate without having to owe any gift tax.

Put in simpler terms, as a single person, you can gift a total of $13.61 million over your lifespan tax-free, as of 2024. After that, any further gifts are taxed. The lifetime amount also adjusts for inflation. Note that this annual exclusion is currently set to decline to a smaller amount in 2026 due to the expiration of tax cuts enacted in 2018.

Other exclusions may also apply. For instance, you never owe gift tax on charitable donations, political contributions or gifts to spouses or dependents. Gifts to pay tuition or medical expenses are likewise not taxed. While wedding gifts are not excluded, you may be able to avoid the entire situation if you pay vendors directly rather than giving money to your daughter beforehand.

Even if you clearly don't owe taxes, you may have to report gift amounts should you give more than $18,000 in 2024 to a specific individual. To do this, you'll fill out IRS Form 709 and send it in with your return. Should you need to pay gift taxes, though, you’ll follow this set of rates and brackets:

Federal Gift Tax Rates

Note that these brackets, similar to those for income taxes, are marginal in nature. This means only the dollars within each bracket are taxed at their respective rates. So if you had $20,000 getting taxed, you’d pay 18% on the first $10,000 and 20% on the remaining $10,000, for a total of $20,000.

Do you have financial planning questions? Talk to a financial advisor today.

Potential Taxes on a $60,000 Wedding Gift

For a $60,000 wedding gift, odds are you won't owe anything because of the $13.61 million lifetime exclusion. This is true even though the amount exceeds the $18,000 annual limit for 2024.

However, let’s assume you’re giving the gift as an individual and have already exceeded the $13.61 million lifetime exclusion. In this case, the tax on your gift would come to $8,680. Here's how that would work using the gift tax’s marginal brackets:

Gift Tax Example

If you give the gift as a couple, the annual exclusion would be $36,000, leaving just $24,000 taxable. In that scenario, your taxes would total $4,680 using the table above as a format for calculation.

Strategies for Managing the Gift Tax

Several strategies can help you reduce your gift tax even if you are over the lifetime exclusion. For example, if you’re married, you could give $30,000 each to your daughter and your daughter's future spouse. Since both gifts would be under 2024’s $36,000 per person exclusion, you would not have to report it, nor would you owe taxes.

You could also spread the gift over two or more years. So if you’re single, you could give your daughter and her future spouse $15,000 each this year and again next year, keeping you under the $18,00 annual gift exclusion, at least for 2024.

Another way to avoid gift taxes is to pay vendors directly. If you pay the venue, the caterer and so on to reach the $60,000 total, you won't have to report these as gifts or pay any taxes.

Gift Planning Tips

• A financial advisor can help you come up with a strategy to manage taxes on gifts. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.

• SmartAsset's income tax calculator can help you plan for your next tax bill. It uses your income, filing status and location to figure state and local income and payroll taxes.

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