How Much Cash Can You Give as a Gift?

A “gift” under Internal Revenue Service (IRS) rules refers to any transfer of money or property to another person for less than full and adequate consideration. The giver does not receive something of equal value in return for the transfer. Understanding these regulations is important for financial planning. The recipient of a gift generally does not pay income tax on the amount received. This guide clarifies federal rules surrounding cash gifts, helping individuals navigate potential tax implications for the giver.

Annual Gift Tax Exclusion

The annual gift tax exclusion allows an individual to give a certain amount of money or property each year to as many people as they wish without incurring gift tax. For the 2024 tax year, this exclusion amount is $18,000 per recipient. For example, you can give $18,000 to your child, another $18,000 to a grandchild, and $18,000 to a friend, all within the same year, and none of these gifts would be taxable. These gifts do not require reporting to the IRS and do not count against the giver’s lifetime exemption.

This annual exclusion applies to “present interest” gifts, meaning the recipient has immediate use, possession, and enjoyment of the gifted funds. Examples include direct cash transfers or outright transfers of property. Gifts that convey a “future interest,” such as contributions to a trust where the beneficiary’s access is delayed, generally do not qualify for the annual exclusion.

If you gift a family member $18,000 in cash in 2024, this transaction falls entirely within the annual exclusion. This gift does not trigger any gift tax, nor does it reduce your lifetime exemption. The IRS adjusts this exclusion amount periodically for inflation, so it is important to verify the current year’s limit.

Lifetime Gift Tax Exemption

Beyond the annual exclusion, the federal tax system provides a lifetime gift tax exemption, which is the cumulative total an individual can give away over their lifetime without incurring federal gift tax. For 2024, this exemption stands at $13.61 million per individual. For example, if you give a single recipient $20,000 in 2024, the $2,000 exceeding the $18,000 annual exclusion would count against your $13.61 million lifetime exemption.

This lifetime exemption is unified with the federal estate tax exemption. Any portion of the exemption used during your lifetime for taxable gifts will reduce the amount available to pass tax-free to heirs upon your death. While gifts exceeding the annual exclusion must be reported to the IRS, no actual gift tax is paid until the cumulative total of these excess gifts surpasses the lifetime exemption amount. Reporting these gifts allows the IRS to track the portion of your lifetime exemption utilized.

Gifts that fall within the annual exclusion do not affect the lifetime exemption. They are entirely separate categories for tax purposes. The lifetime exemption provides significant flexibility for individuals with substantial assets to transfer wealth during their lives without immediately incurring gift tax liability.

Gifts Not Subject to Gift Tax

Certain types of gifts are entirely exempt from federal gift tax, regardless of their amount. These transfers do not count against either the annual exclusion or the lifetime exemption, providing avenues for significant tax-free financial support.

Direct payments for qualified educational expenses are exempt. You can pay tuition directly to a qualifying educational institution on behalf of another person. This exclusion applies only to tuition costs and does not extend to other educational expenses such as books, supplies, room, or board. The payment must be made directly to the educational institution to qualify for this unlimited exclusion.

Direct payments for qualified medical expenses are also exempt from gift tax. If you pay a medical provider directly for the medical care of another individual, including diagnosis, treatment, prevention of disease, or medical insurance premiums, these amounts are exempt. As with educational expenses, the payment must go directly to the medical service provider.

Gifts between spouses who are both U.S. citizens benefit from an unlimited marital deduction. There is a specific annual exclusion amount for gifts to a spouse who is not a U.S. citizen, which is $185,000 for 2024. Gifts made to qualifying political organizations or to qualified charitable organizations are also exempt from federal gift tax.

Gift Splitting

Married couples can maximize their gift-giving capacity through gift splitting. This allows a married couple to treat a gift made by one spouse to a third party as if it were made one-half by each spouse. This effectively doubles the annual exclusion amount available per recipient. For example, in 2024, instead of one spouse giving $18,000 to an individual, a married couple can combine their exclusions and give a total of $36,000 to that same individual.

To elect gift splitting, both spouses must be U.S. citizens or residents at the time the gift is made. Both spouses must consent to gift splitting for all gifts made by either spouse during that calendar year. This consent is documented on IRS Form 709, the United States Gift Tax Return. Filing Form 709 is required to make the gift-splitting election, even if no gift tax is due. For instance, if one spouse gives $30,000 to a child, they can elect to split the gift, effectively having each spouse give $15,000, avoiding a taxable gift.

Reporting Requirements for Gifts

While many gifts fall under the annual exclusion and do not require reporting, certain situations necessitate filing IRS Form 709, the United States Gift Tax Return. If you give $18,000 or less to each individual in a given year (2024 amount), you typically do not need to file Form 709.

A gift tax return becomes mandatory in several instances. You must file Form 709 if you make a gift to any one person that exceeds the annual exclusion amount in a calendar year. For example, if you give someone $20,000 in 2024, you would report the $2,000 above the annual exclusion. If you elect to split gifts with your spouse, a Form 709 must be filed by both spouses, even if no tax is due. Gifts not considered “present interest” gifts, such as certain transfers to trusts, also require reporting on Form 709, regardless of their value.

Filing Form 709 does not automatically mean gift tax is owed. Its purpose is to inform the IRS of gifts that exceed the annual exclusion, allowing the agency to track the cumulative amount of taxable gifts made against your lifetime exemption. The deadline for filing Form 709 is generally April 15th of the year following the gift.