How Much Can a Grandparent Gift a Grandchild?
Understand the federal tax implications when gifting to a grandchild. Learn the rules and strategies for giving generously without creating a tax liability.
A gift from a grandparent is a transfer of money or property to a grandchild for which the grandparent does not receive something of equal value in return. Federal tax laws set specific rules for how much can be given without incurring tax consequences. Understanding these regulations allows for generosity while navigating the associated requirements.
The Annual Gift Tax Exclusion
The federal government allows individuals to give a certain amount of money or property to any other person each year without any tax implications. For 2025, this annual gift tax exclusion is $19,000 per recipient. This means a grandparent can give up to $19,000 to each of their grandchildren every year, and these gifts do not need to be reported to the IRS. The limit is specific to the donor, so each grandparent can make these individual gifts.
For example, if a grandparent has three grandchildren, they can give each grandchild $19,000 in 2025, for a total of $57,000 in gifts, without triggering any tax filing requirements. This annual exclusion is a tool for transferring wealth over time.
Married grandparents can combine their individual exclusions through a practice known as “gift splitting.” This allows them to give up to $38,000 to a single grandchild in 2025, completely free of gift tax. To utilize gift splitting, the couple must consent to the arrangement.
Gifting Beyond the Annual Exclusion
When a gift to a grandchild exceeds the annual exclusion amount, it does not automatically result in a tax bill. Instead, the excess amount is counted against the grandparent’s unified federal gift and estate tax exemption, often called the “lifetime exemption.” For 2025, this lifetime exemption is $13.99 million per individual. Any gift amount above the $19,000 annual limit simply reduces this lifetime allowance.
For instance, if a grandparent gives a grandchild $69,000 in 2025, the first $19,000 is covered by the annual exclusion. The remaining $50,000 is then subtracted from their $13.99 million lifetime exemption, leaving them with $13.94 million. Gift tax is only due when a person’s total lifetime gifts that exceed the annual limits surpass this entire exemption amount.
Gifts to grandchildren are also subject to the Generation-Skipping Transfer (GST) tax. This is a separate federal tax designed to prevent families from avoiding estate taxes by transferring wealth directly to a generation that is two or more levels below the donor. The GST tax has its own exemption, which for 2025 is also $13.99 million and is linked to the lifetime gift and estate tax exemption. When a gift to a grandchild exceeds the annual exclusion, the excess amount simultaneously uses up a portion of both the lifetime gift exemption and the GST exemption.
Required Tax Filings for Gifts
When a grandparent gives more than the $19,000 annual exclusion to any single grandchild in a calendar year, the gift must be reported to the IRS. The donor is responsible for filing Form 709, the U.S. Gift (and Generation-Skipping Transfer) Tax Return. This form is also required if married grandparents use “gift splitting” or when making an election to treat a large 529 plan contribution as being made over five years.
To complete Form 709, the grandparent will need to gather specific information. This includes the grandchild’s full name and address, a description of the gift, and the gift’s fair market value on the date it was transferred.
The deadline for filing Form 709 is typically April 15 of the year following the year in which the gift was made, aligning with the standard income tax filing deadline. If a grandparent files for an extension on their personal income tax return using Form 4868, the extension automatically applies to Form 709.
Special Gifting Strategies for Grandchildren
Certain types of gifts to grandchildren have unique rules that allow for generosity beyond the standard annual exclusion. One strategy involves making direct payments for educational tuition or medical expenses. Under Internal Revenue Code Section 2503, these payments are not considered taxable gifts, regardless of the amount. The payment must be made directly to the educational institution or the medical care provider, not to the grandchild, and these qualified transfers do not reduce the annual exclusion or lifetime exemption.
Another strategy involves contributions to a 529 college savings plan. A special rule allows a grandparent to “superfund” a 529 plan by making a lump-sum contribution and electing to treat it as if it were made over a five-year period. This means a grandparent can contribute up to five times the annual exclusion amount at once—$95,000 in 2025—for a single grandchild without using any of their lifetime gift exemption.
By making a $95,000 contribution, the grandparent is using their $19,000 annual exclusion for that grandchild for the current year and the next four years. During this five-year window, any additional gifts to that same grandchild would exceed the prorated annual limit and require using part of the lifetime exemption.