Can I Gift Money to My Children Tax-Free?

The federal government provides a framework for giving financial support to children without incurring a tax. The Internal Revenue Service (IRS) defines a gift as any transfer of money or property to another person without receiving something of at least equal value in return. The system is designed to allow for generosity within specific limits before any tax implications arise for the giver.

The Annual Gift Tax Exclusion

The federal tax code allows individuals to give a certain amount of money to any number of people each year without tax consequences. For 2025, this annual gift tax exclusion is $19,000 per recipient. A person can give up to this amount to any number of individuals during the calendar year without having to file a gift tax return, and the limit resets on January 1st.

This exclusion applies to each individual giver. For example, a parent can give $19,000 to each of their three children for a total of $57,000 in gifts without any reporting requirements. Gifts can be cash, stocks, or other assets, and are valued at their fair market value on the date of the transfer. It is the giver of the gift, not the recipient, who is responsible for any potential tax.

Married couples can combine their allowances through “gift splitting,” allowing them to give up to double the annual exclusion amount to a single recipient. For 2025, a married couple can jointly give up to $38,000 to each child. Utilizing gift splitting requires filing a gift tax return.

Gifts Exceeding the Annual Exclusion

If a gift to one person in a year exceeds the annual exclusion, it does not automatically trigger a tax payment. Instead, the excess amount is applied against the lifetime gift and estate tax exemption. For 2025, this lifetime exemption is $13.99 million per person.

For instance, if a parent gives a child $24,000 in 2025, the first $19,000 is covered by the annual exclusion. The remaining $5,000 is a taxable gift that reduces the parent’s lifetime exemption to $13,985,000. No gift tax is paid unless the total of all such gifts surpasses the lifetime exemption.

The lifetime exemption is unified with the estate tax, so amounts used for lifetime gifts reduce the tax-free portion of an estate. A married couple can combine their lifetime exemptions, shielding a total of $27.98 million from federal gift or estate taxes in 2025. Under current law, this exemption amount is scheduled to be reduced at the beginning of 2026.

Required Tax Filings for Gifts

A gift tax return, IRS Form 709, must be filed under specific circumstances, even if no tax is due. Filing is mandatory for any year in which an individual gives a gift that exceeds the annual exclusion amount. The return is also required when a married couple agrees to split gifts, regardless of the amount.

The main purpose of filing Form 709 is to track the use of the donor’s lifetime gift tax exemption. When a gift exceeds the annual exclusion, the form calculates the taxable portion and shows how it reduces the remaining lifetime exemption. The donor must determine the gift’s fair market value at the time of the transfer.

The return is due on April 15 of the year following the gift. When splitting gifts, each spouse must file their own separate Form 709. The IRS began accepting Form 709 electronically in 2025.

Special Gifting Rules and Strategies

Certain financial transfers are not considered taxable gifts and do not count against the annual or lifetime exclusion amounts. These exceptions are based on specific rules about how the payments are made and for what purpose, offering alternative ways to provide financial assistance.

Direct Payments for Tuition

Payments for another person’s tuition are not treated as taxable gifts, regardless of the amount, if the payment is made directly to the educational institution. This exclusion applies only to tuition costs, not expenses like books or room and board. Giving the money to the child to pay their own tuition does not qualify.

Direct Payments for Medical Expenses

Payments for another person’s medical expenses are not considered gifts if paid directly to the medical care provider, such as a hospital or doctor. This exclusion can also cover payments for medical insurance premiums. To qualify, the payment must be made directly to the provider, not to the individual.

Contributions to 529 Plans

Contributions to a 529 education savings plan are considered gifts but have a special rule for accelerated gifting. An individual can contribute up to five times the annual exclusion amount at once and treat it as if it were made over five years. For 2025, this allows a single person to contribute up to $95,000 to a 529 plan in one year, or $190,000 for a married couple, without reducing their lifetime gift exemption. The donor must file Form 709 to make this election and cannot give other gifts to that beneficiary during the five-year period.