How Much Money Can I Gift My Children Tax-Free?

Parents often provide financial support to their children. Understanding IRS rules for gifts is important to avoid unexpected tax liabilities. These rules help ensure financial assistance is provided effectively.

Understanding the Annual Gift Tax Exclusion

The annual gift tax exclusion allows individuals to transfer money or property without incurring gift tax or using their lifetime exemption. For 2025, this amount is $19,000 per recipient, meaning you can give up to $19,000 to each person without reporting the gift or paying tax.

This exclusion applies “per donor, per recipient, per year.” A single parent can gift $19,000 to each child in 2025. Married couples can each give $19,000 to the same individual, effectively doubling the tax-free amount to $38,000 per recipient.

Married couples can also utilize “gift splitting,” even if only one spouse’s funds are used. By electing to split the gift, it is treated as if each spouse contributed half, allowing a combined $38,000 to be given to one person without tax implications. For example, a married couple with two children could collectively give each child $38,000 in 2025, totaling $76,000, without using any of their lifetime exemption or triggering gift tax.

Gifts That Do Not Count Towards the Exclusion

Certain types of payments or transfers are not considered taxable gifts and therefore do not count against either the annual exclusion or the lifetime exemption.

Payments made directly to a medical provider for someone else’s medical care are excluded from gift tax. This applies to payments directly to hospitals, doctors, or dentists for diagnosis, cure, mitigation, treatment, or prevention of disease, or for transportation essential to medical care.

Direct payments for qualified educational expenses are also not considered taxable gifts. This exclusion specifically applies to amounts paid directly to an educational organization for tuition. It does not extend to other costs like books, supplies, dormitory fees, or room and board, which would count against the annual gift tax exclusion if paid on behalf of another.

Gifts to a U.S. citizen spouse are generally unlimited and not subject to gift tax. However, gifts to a non-citizen spouse have a specific annual exclusion amount, which is significantly higher than the general annual exclusion. For 2025, the first $190,000 of gifts to a non-U.S. citizen spouse are excluded from gift tax.

The Lifetime Gift Tax Exemption

Beyond the annual exclusion, a cumulative lifetime gift tax exemption allows individuals to give a much larger sum without federal gift tax. For 2025, this amount is $13.99 million per individual. Gifts exceeding the annual exclusion reduce this lifetime exemption.

This exemption is unified with the estate tax exemption; any portion used for gifts reduces the amount that can pass tax-free from your estate at death. For example, gifting $100,000 above the annual exclusion decreases your available lifetime exemption by that amount. Married couples have a combined lifetime exemption of $27.98 million in 2025.

The concept of portability allows a surviving spouse to use any unused portion of their deceased spouse’s exemption. This provision ensures that married couples can maximize their combined exemption amounts, potentially shielding a larger portion of their assets from federal estate and gift taxes. While the current exemption is substantial, it is important to note that under current law, this amount is scheduled to decrease by approximately half starting in 2026.

Reporting Requirements for Gifts

When gifts exceed the annual gift tax exclusion, they generally require reporting to the IRS. This is done using IRS Form 709, titled “United States Gift (and Generation-Skipping Transfer) Tax Return.” Filing Form 709 is necessary even if no gift tax is owed, as it helps the IRS track your lifetime exemption usage.

Form 709 is required if you give more than the annual exclusion to any one person, or make gifts of “future interests” regardless of the amount. It is also required if married couples elect to split gifts, even if the individual gift amount is below the annual exclusion. The form requires details about the donor, the recipient, the value of the gift, and how any exclusions or deductions apply.

The filing deadline for Form 709 is generally April 15 of the year following the gift. For example, gifts made in 2025 require filing by April 15, 2026. An extension for your income tax return (Form 1040) automatically extends the Form 709 deadline.

Implications for the Gift Recipient

For the recipient, receiving a gift of money or property generally does not trigger income tax liability. Under federal tax law, gifts are not considered taxable income to the person who receives them, meaning your children will not owe income tax on the assets received.

If the gift is property like stocks or real estate, the recipient usually takes on the donor’s original cost basis. This “carryover basis” is important for calculating future capital gains or losses if the property is later sold. For instance, if you gift stock bought for $1,000 now worth $5,000, your child’s basis remains $1,000.

Large gifts of cash or assets can affect a child’s eligibility for need-based college financial aid. Financial aid calculations, like those for the Free Application for Federal Student Aid (FAFSA), consider a student’s and family’s assets. Substantial gifts could increase reported assets, potentially reducing qualified financial aid.