How Much Money Can You Gift Your Child Tax-Free?

Gifting money or assets to children can be a financially impactful decision, carrying various tax implications. These transfers, whether large or small, may be subject to federal gift tax rules. Understanding the relevant tax exclusions and exemptions is important for financial planning.

Annual Gift Tax Exclusion

The annual gift tax exclusion allows an individual to give a certain amount of money or property value to any other individual each year without incurring gift tax. For 2024, this annual exclusion amount is $18,000 per recipient. A donor can give $18,000 to each child, and to as many other individuals as they wish, without tax consequences.

This exclusion applies on a “per donor, per donee, per year” basis. For example, a single parent can give $18,000 to one child, and if they have two children, they can give $18,000 to each, totaling $36,000 in tax-free gifts for the year. Married couples can combine their individual exclusions, effectively doubling the amount they can gift. This practice, known as gift splitting, allows a married couple to give $36,000 to a single individual in 2024 without tax implications.

Even if only one spouse owns the gifted asset, they can elect to split the gift, treating it as if each spouse gave half. For instance, a married couple can give $36,000 to each of their two children, totaling $72,000 in tax-free gifts for the year, provided they elect gift splitting. Gifts made within this annual exclusion amount generally do not require any reporting to the Internal Revenue Service (IRS).

Lifetime Gift Tax Exemption

When gifts exceed the annual exclusion amount, they begin to use up a donor’s lifetime gift tax exemption. For 2024, the federal lifetime gift tax exemption is $13.61 million per individual. This amount is unified with the estate tax exemption, meaning any portion of the lifetime gift tax exemption used during life reduces the amount available for the estate tax exemption at death.

Gifts made above the annual exclusion amount but still within the lifetime exemption typically do not result in immediate gift tax due. Instead, these excess amounts reduce the donor’s available lifetime exemption. For example, if an individual gifts $28,000 to a child in 2024, the first $18,000 is covered by the annual exclusion, and the remaining $10,000 reduces their $13.61 million lifetime exemption.

Married couples also benefit from this exemption, effectively having a combined lifetime exemption of $27.22 million for 2024. A surviving spouse may be able to use the unused portion of their deceased spouse’s exemption, a concept known as portability.

Gifts Not Subject to Annual Limits

Certain types of payments are not considered taxable gifts and therefore do not count against either the annual exclusion or the lifetime exemption. These specific exclusions allow individuals to provide financial support without triggering gift tax rules.

Direct payments made to a medical provider for someone else’s medical care are not taxable gifts. This applies only when the payment is made directly to the medical service provider, not as a reimbursement to the individual. The expenses must be for qualified medical care, such as diagnosis, treatment, or medical insurance premiums.

Similarly, direct payments made to an educational institution for someone else’s tuition are not taxable gifts. This exclusion applies specifically to tuition costs and requires payment directly to the institution. It does not extend to other educational expenses like books, supplies, room and board, or other fees.

Gifts to a U.S. citizen spouse are generally unlimited and do not trigger gift tax due to the unlimited marital deduction. This provision treats married U.S. citizens as a single economic unit for transfer tax purposes. However, for gifts to a non-U.S. citizen spouse, there is an annual exclusion amount, which is $185,000 for 2024.

Gifts made to qualified political organizations for their use are also not considered taxable gifts. Finally, gifts to qualified charitable organizations are generally unlimited and not subject to gift tax.

Reporting Requirements for Gifts

A gift tax return, Form 709, is required to be filed in specific situations, even if no tax is owed. The donor, not the recipient, is responsible for filing this form. Filing Form 709 helps the IRS track the use of the lifetime exemption.

Form 709 must be filed if gifts to any one individual (other than a U.S. citizen spouse) exceed the annual gift tax exclusion amount in a calendar year. For example, a gift of $20,000 to a child would necessitate filing Form 709 to report the $2,000 that exceeds the annual exclusion.

Additionally, Form 709 is required when gifts are made to a non-U.S. citizen spouse that exceed their specific annual exclusion amount. If married couples elect to split gifts, Form 709 must be filed by both spouses, even if the individual gifts are within the annual exclusion amount. The filing deadline for Form 709 is generally April 15th of the year following the gift.