How Much Can You Gift a Child Without Paying Taxes?

When a person transfers money or property to another individual without expecting to receive something of equal value in return, the Internal Revenue Service (IRS) generally considers this a “gift.” While many everyday exchanges, such as birthday presents or holiday gifts, typically do not have tax implications, larger financial transfers are subject to specific rules. The federal gift tax system complements the estate tax, preventing individuals from avoiding estate taxes by giving away assets before death. Understanding these regulations helps individuals navigate financial gifting.

Annual Gift Limits

Federal tax law provides an annual gift tax exclusion, allowing individuals to give money or property to any person each year without incurring gift tax. For the 2024 tax year, this annual exclusion is $18,000 per recipient. A donor can give $18,000 to any number of individuals within a calendar year, and these gifts do not need to be reported to the IRS.

The annual exclusion applies on a per-donee basis, allowing a donor to make separate $18,000 gifts to multiple individuals in the same year. Married couples can “gift split,” combining their individual annual exclusions. This allows a married couple to gift up to $36,000 to any single individual in 2024 without tax implications. The responsibility for paying any potential gift tax rests solely with the donor, not the recipient.

Lifetime Gift Allowance

When a gift to an individual exceeds the annual exclusion amount, it does not result in immediate gift tax liability. Instead, the excess amount reduces the donor’s lifetime gift tax exemption. This exemption is a cumulative total of gifts an individual can make over their lifetime that exceed the annual exclusion before any gift tax becomes due.

For 2024, the lifetime gift tax exemption is $13.61 million per individual. This substantial amount is unified with the federal estate tax exemption, meaning that gifts made during one’s lifetime that exceed the annual exclusion reduce the amount that can be passed to heirs free of estate tax upon death. Once a donor has utilized their entire lifetime exemption, any subsequent gifts exceeding the annual exclusion are subject to federal gift tax. The specific lifetime exemption amount is adjusted periodically for inflation.

Gift Categories Not Subject to Tax

Beyond the annual exclusion and lifetime exemption, certain types of gifts are not counted against either limit, regardless of their value. These specific exclusions allow for significant financial transfers without gift tax implications. For instance, direct payments for qualified educational expenses are exempt from gift tax. This exemption applies only when tuition is paid directly to an educational institution, such as a college or university, on behalf of a student. Expenses like books, supplies, and living costs do not qualify for this unlimited exclusion.

Similarly, direct payments for qualified medical expenses are also not considered taxable gifts. This exclusion applies when payments are made directly to a medical care provider for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for transportation essential to medical care. Additionally, gifts made to a spouse who is a U.S. citizen are generally exempt from gift tax, as are gifts to qualified political organizations and qualified charitable organizations. These specific categories offer avenues for substantial tax-free giving outside the annual and lifetime limits.

Reporting Requirements

Even when no gift tax is owed, certain gifts must be reported to the Internal Revenue Service on Form 709, United States Gift Tax Return. This form is required if an individual makes a gift to any person that exceeds the annual exclusion. For example, if a donor gives more than $18,000 to a single recipient in 2024, Form 709 must be filed.

Form 709 is also necessary if married couples elect to split gifts to take advantage of their combined annual exclusions. Certain gifts, such as those involving future interests, typically require reporting regardless of their value. The primary purpose of filing Form 709 for gifts exceeding the annual exclusion is to track the lifetime gift tax exemption used. This form is typically due by April 15th of the year following the gift, though extensions may be available.