Can Both Parents Gift Money to a Child? A Tax Breakdown

Transferring money to a child is often considered a gift by the Internal Revenue Service (IRS). A gift, in this context, is any transfer of money or property from one individual to another for which the giver does not receive something of equal value in return. Parents can indeed gift money to their children, and there are specific tax rules that govern these transfers. This article will clarify the rules surrounding gifts from parents to children, outlining key concepts and filing requirements.

The Annual Gift Tax Exclusion

The annual gift tax exclusion allows an individual to give a certain amount of money or property to any other individual within a calendar year without incurring gift tax or using up their lifetime exemption. For 2024, this annual exclusion amount is $18,000 per recipient. This rule applies on a per-donor, per-recipient basis, meaning each parent can independently utilize this exclusion.

Since each parent is considered a separate donor, both parents can gift money to the same child in the same year, each using their individual annual exclusion. For example, in 2024, one parent could gift $18,000 to a child, and the other parent could also gift $18,000 to the same child, for a combined total of $36,000, all without triggering gift tax or reducing their lifetime exemption.

Parents can collectively give up to $36,000 in 2024 to a child without any gift tax consequences or reporting requirements. The annual exclusion resets each calendar year, allowing for repeated tax-free gifting over time. The “present interest” aspect means the recipient must have immediate and unrestricted use of the gifted funds.

Understanding Gift Splitting

Gift splitting is a separate tax election available to married couples, distinct from each spouse making an individual gift. This election allows a gift made by one spouse to be treated for tax purposes as though it were made equally by both spouses. This is particularly useful when one spouse has significantly more assets or makes a gift from a joint account.

For instance, if one parent gives a child $30,000 in 2024, exceeding their individual $18,000 annual exclusion, they can elect to split the gift with their spouse. By doing so, $15,000 of the gift is attributed to each parent, effectively utilizing both spouses’ $18,000 annual exclusions for that single recipient. This means the entire $30,000 gift falls within the combined annual exclusion, and no taxable gift occurs.

It ensures that the combined annual exclusion amount of $36,000 for 2024 can be fully utilized for a single recipient, even if the funds originate from only one spouse’s account. It does require a specific election on the gift tax return, Form 709.

Lifetime Exemption and Taxable Gifts

When gifts to a child exceed the annual exclusion amount, even after considering gift splitting, they are considered “taxable gifts.” However, these taxable gifts do not result in an immediate gift tax payment. Instead, they first reduce the donor’s lifetime gift tax exemption. The federal gift and estate tax exemptions are unified, meaning they share the same total exclusion amount.

For 2024, the lifetime gift tax exemption is $13.61 million per individual. This means an individual can make taxable gifts totaling up to $13.61 million over their lifetime before any gift tax is actually owed. For a married couple, their combined lifetime exemption could be $27.22 million if both are U.S. citizens.

Any portion of a gift that exceeds the annual exclusion amount is subtracted from this lifetime exemption. For example, if a parent gives a child $20,000 in 2024, and no gift splitting occurs, $2,000 ($20,000 – $18,000 annual exclusion) is considered a taxable gift. This $2,000 then reduces the parent’s available lifetime exemption.

Filing Gift Tax Returns

A gift tax return, Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return,” is required in specific situations. This includes when a gift to an individual exceeds the annual exclusion amount, even if no actual gift tax is due because the lifetime exemption covers the taxable portion. The form is also necessary when married couples elect to split gifts, regardless of whether the gift exceeds the exclusion.

The due date for filing Form 709 is April 15 of the year following the gift. For gifts made in 2024, the return would be due by April 15, 2025. An automatic six-month extension to file income tax returns also extends the due date for Form 709. The form and its instructions are available on the IRS website.

Filing Form 709 primarily serves as an informational record for the IRS to track the use of an individual’s lifetime gift tax exemption. It ensures that the cumulative amount of taxable gifts is accounted for against the exemption, which impacts potential estate tax liability upon death.