Do You Need to Issue a 1099 for Gifts?

Many people question whether they need to issue a Form 1099 after giving a substantial gift. Form 1099 is a tax document used to report various types of income to the Internal Revenue Service, but it is not the correct document for genuine gifts. The tax implications of giving gifts are handled under a different set of rules and forms that focus on the giver, not the recipient.

Distinguishing Gifts from Taxable Income

According to the IRS, a gift is any transfer to an individual where full consideration is not received in return, meaning it is made out of generosity. For example, giving a family member cash for a birthday or helping a friend with a down payment on a house out of goodwill are classic examples of gifts. In these scenarios, the recipient does not have to report the gift as income, and the giver does not issue a Form 1099.

Conversely, payments requiring a Form 1099 are taxable income for the recipient because they are compensatory. The primary forms are the 1099-NEC for nonemployee compensation and the 1099-MISC for other income like rent or prizes. If a business pays a freelance graphic designer $700 for a logo, a Form 1099-NEC must be issued as the payment is for services and exceeds the $600 threshold. If a company awards a $1,000 prize, it would be reported on a Form 1099-MISC.

The distinction can be nuanced in a business context. If a company gives a client an item of nominal value, like a holiday fruit basket, it is not reportable. Businesses are limited to a $25 deduction per recipient per year for business gifts. If a business provides a “gift” that is effectively a bonus, such as a $1,000 gift card to a contractor for good performance, the IRS views this as compensation. Gift cards are considered cash equivalents, treated as taxable income, and included in the total compensation reported on Form 1099-NEC.

The Annual Gift Tax Exclusion

The tax code provides an annual gift tax exclusion, which is the amount of money or property individuals can give to others each year without tax consequences or filing requirements. For 2025, the exclusion amount is $19,000 per recipient. This limit is applied on a per-donor, per-recipient basis, meaning an individual can give up to $19,000 to any number of people without needing to file a gift tax return.

Married couples can combine their individual exclusions 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 $38,000 to one person. To use gift splitting, the couple must consent to the arrangement and may need to file a gift tax return to signify the election, even if no tax is due.

Certain payments are not considered gifts for tax purposes and do not count against the annual exclusion. These include tuition payments made directly to an educational institution for a student and medical expenses paid directly to a healthcare provider for someone’s care. As long as the payments are made directly to the school or medical facility, they are fully exempt from the gift tax, regardless of the amount.

Understanding the Gift Tax Return

When a person gives a gift that exceeds the annual exclusion limit, they must file Form 709, the United States Gift Tax Return. The responsibility for filing this form and paying any potential tax lies with the donor, not the recipient. The purpose of Form 709 is to report gifts that surpass the annual exclusion and to track the donor’s use of their lifetime gift tax exemption.

To complete the form, the donor must provide specific information, including:

• The donor’s name, address, and Social Security number
• The recipient’s full name, address, and their relationship to the donor
• A clear description of the gift (e.g., cash, stock, real estate)
• The date the gift was made and its fair market value at that time
• The donor’s adjusted basis in the property, which is what they originally paid for it

For property other than cash, determining the fair market value may require an appraisal. The official form and its detailed instructions are available on the IRS website.

Filing Form 709

Unlike individual income tax returns, Form 709 cannot be filed electronically and must be mailed. The paper form should be sent to the Department of the Treasury, Internal Revenue Service, Attn: E&G, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915.

The deadline for filing Form 709 is April 15 of the year following the year the gift was made, aligning with the deadline for federal income tax returns. If a donor files for an extension on their personal income tax using Form 4868, the extension automatically applies to Form 709, moving the deadline to October 15. A separate extension for the gift tax return can be requested using Form 8892.

Filing Form 709 does not automatically mean that tax is owed. When a gift exceeds the annual exclusion, the excess amount is first applied against the donor’s lifetime gift tax exemption. For 2025, this lifetime exemption is $13.99 million. Only after this lifetime amount has been fully used would any gift tax be due. Filing the form serves to document the taxable gift and reduce the remaining lifetime exemption available for future gifts or the donor’s estate.