How Much Money Can a Person Receive as a Gift Without Being Taxed?

In the United States, gift tax rules are designed to prevent individuals from avoiding estate taxes by giving away assets before death. The responsibility for paying any gift tax generally falls on the giver, not the recipient. While recipients typically do not owe income tax on gifts received, both parties benefit from understanding the specific thresholds and reporting requirements.

Understanding the Annual Gift Exclusion

A fundamental aspect of gift tax law is the annual gift exclusion, which allows individuals to give a certain amount of money or property each year to any number of recipients without incurring gift tax or needing to report the gift to the Internal Revenue Service (IRS). For 2024, this annual exclusion amount is $18,000 per recipient. This means a giver can provide $18,000 to one person, another $18,000 to a second person, and so on, to as many individuals as they choose, all without tax implications for either party.

Married couples have the ability to combine their annual exclusions, effectively doubling the amount they can give to a single recipient each year without tax consequences. This is often referred to as “gift-splitting.” For example, in 2024, a married couple could jointly give up to $36,000 to one individual without any gift tax liability or reporting requirement.

Gifts made within this annual exclusion amount are considered truly tax-free for both the giver and the recipient. The giver avoids gift tax, and there is no need to file a gift tax return (Form 709) for such gifts. The recipient does not have to report these gifts as income, nor do they owe any income tax on the amount received. This exclusion provides a straightforward way for individuals to transfer wealth without immediate tax concerns.

Gifts Not Subject to Tax Rules

Beyond the annual exclusion, certain types of gifts are entirely exempt from gift tax rules and do not count against either the annual exclusion or the lifetime exemption. These include:

Direct payments for qualified educational expenses: Payments made directly to an educational institution for tuition on behalf of a student are unlimited and are not considered taxable gifts. This exemption applies only to tuition and not to other costs like room and board, books, or supplies.
Direct payments for qualified medical expenses: Payments made directly to a medical provider for someone else’s medical care are not subject to gift tax. There is no limit to the amount that can be paid under this exemption, provided the payment goes directly to the healthcare provider.
Gifts made between spouses who are both U.S. citizens: These generally qualify for an unlimited marital deduction. A U.S. citizen spouse can give an unlimited amount of money or property to their U.S. citizen spouse without any gift tax implications. For gifts to a non-citizen spouse, a specific annual exclusion applies, and larger gifts may require the use of a Qualified Domestic Trust (QDOT) to defer estate taxes.
Gifts made to qualified political organizations: These are generally exempt from gift tax.
Contributions to qualified charitable organizations: These are also exempt from gift tax.

The Lifetime Gift Tax Exemption

When a gift exceeds the annual exclusion amount, it does not automatically mean gift tax is owed. Instead, the excess amount begins to reduce an individual’s lifetime gift tax exemption, also known as the basic exclusion amount. This exemption represents the total cumulative amount an individual can give away during their lifetime, or transfer at death as part of their estate, without incurring federal gift or estate tax. For 2024, this lifetime exemption is $13.61 million per individual.

Gifts that surpass the annual exclusion, and are not otherwise exempt, diminish this lifetime exemption amount. For example, if an individual gives $28,000 to a person in 2024, the first $18,000 is covered by the annual exclusion, and the remaining $10,000 reduces the giver’s available lifetime exemption. This reduction does not trigger an immediate tax payment.

Gift tax is only incurred if the total cumulative taxable gifts made during an individual’s lifetime exceed their available lifetime exemption. The lifetime gift tax exemption is “unified” with the estate tax exemption, meaning any portion of the exemption used for gifts during life reduces the amount available to shelter assets from estate tax at death. This unified system ensures that wealth transfers, whether during life or at death, are accounted for against the same cumulative exclusion amount.

Even when gifts reduce the giver’s lifetime exemption, the recipient of the gift still does not pay income tax on the amount received. The gift tax system primarily concerns the transfer of wealth from the giver, not the income of the recipient. The lifetime exemption provides a substantial buffer for individuals to transfer significant assets without immediate tax liability.

When Gifts Need to Be Reported

Even if no gift tax is owed, certain gifts must be reported to the IRS on Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. This reporting requirement is primarily for informational purposes, allowing the IRS to track an individual’s use of their lifetime gift tax exemption. A Form 709 is generally required if:

A gift to an individual exceeds the annual exclusion amount for that year.
Married couples elect to split gifts. The election to gift-split must be formally indicated on a Form 709 filed by both spouses. This ensures proper accounting of each spouse’s annual exclusion usage.
Gifts of “future interests,” regardless of the amount. A future interest is a gift that provides the recipient with the right to use, possess, or enjoy the property at some point in the future, rather than immediately.
A gift is made to a non-citizen spouse that exceeds a specific annual limit, which is separate from the general annual exclusion. This ensures that transfers to non-citizen spouses are tracked, as they do not qualify for the unlimited marital deduction.

In all these reporting scenarios, the primary purpose of filing Form 709 is to inform the IRS and track the use of the giver’s lifetime exemption, rather than to pay immediate tax. The recipient of the gift is generally not responsible for filing this form or for any potential gift tax liability.