How much money can you give to your grandchildren tax-free?

Federal tax laws provide clear frameworks that allow for substantial gifts to be made to grandchildren entirely free of tax. Understanding these rules enables grandparents to provide meaningful assistance for education, healthcare, and general financial well-being. The primary methods for this tax-free gifting can be used alone or in combination to achieve significant financial transfers.

The Annual Gift Exclusion

The most straightforward method for gifting money to grandchildren without tax consequences is the annual gift tax exclusion. This Internal Revenue Service (IRS) rule allows an individual to give a specific amount of money or property to any number of recipients each year without incurring a gift tax. For the 2025 calendar year, this amount is $19,000 per recipient.

The exclusion is applied on a per-giver, per-recipient basis. A grandparent can give up to $19,000 to each of their grandchildren in a single year. For example, if a grandparent has three grandchildren, they can give each of them $19,000 for a total of $57,000 in tax-free gifts for 2025. This process can be repeated annually, as the exclusion amount is periodically adjusted for inflation.

Married couples can use a strategy known as “gift splitting” to double the tax-free amount. By combining their individual exclusions, a couple can give up to $38,000 to a single grandchild in 2025. Even if the funds come from only one spouse, the gift is treated for tax purposes as if each contributed half, provided both spouses consent. Consenting to split a gift requires filing a gift tax return.

The annual exclusion applies to gifts of a “present interest,” where the recipient has an unrestricted right to the immediate use and enjoyment of the property. If the total value of gifts from one individual to any single recipient within the calendar year is at or below the $19,000 threshold, there is no requirement to report the gift to the IRS.

Direct Payments for Education and Medical Expenses

Federal tax law provides another method for unlimited tax-free gifting. Payments made directly to a qualifying educational institution for tuition or to a healthcare provider for medical expenses are not considered taxable gifts. These payments do not count against the annual gift exclusion or a person’s lifetime gift exemption.

The requirement for this exclusion is that the payment must be made directly from the giver to the institution. For example, a grandparent must pay the school’s bursar’s office directly, not give the money to the grandchild to pay the bill. Similarly, payments for medical care must go straight to the hospital, doctor’s office, or insurance company.

For educational costs, the exclusion is limited to tuition and does not cover expenses for books, supplies, or room and board. For medical expenses, the definition includes payments for the diagnosis, cure, treatment, or prevention of disease, as well as payments for medical insurance premiums.

There is no dollar limit on these direct payments. A grandparent could pay a grandchild’s $70,000 university tuition bill directly to the school, and this transfer would be tax-free. This payment would not affect their ability to also give that same grandchild a separate gift under the annual exclusion.

Gifting Beyond the Annual Exclusion

When a gift to a grandchild exceeds the annual exclusion amount, it does not automatically trigger a tax bill. Instead, the excess amount counts against the unified federal gift and estate tax exemption, often called the “lifetime exemption.” For 2025, the lifetime exemption is $13.99 million per individual.

For example, if a grandparent gives a grandchild $50,000 in 2025, the first $19,000 is covered by the annual exclusion. The remaining $31,000 is a taxable gift that reduces the grandparent’s $13.99 million lifetime exemption. A gift tax return must be filed to report this use of the lifetime exemption, but no tax is owed.

Gifts to grandchildren are also subject to the Generation-Skipping Transfer (GST) Tax. This tax applies to transfers made to individuals two or more generations younger than the donor. The GST tax has its own exemption, which for 2025 is also $13.99 million.

When a gift to a grandchild exceeds the annual exclusion, it reduces both the lifetime gift exemption and the GST tax exemption simultaneously. Using the previous example, the $31,000 excess would reduce both exemptions by that amount. The GST tax, levied at a 40% rate, only applies if a person’s total generation-skipping gifts exceed their available GST exemption.

Filing a Gift Tax Return

A federal gift tax return, IRS Form 709, must be filed for certain gifting activities, even if no tax is owed. Filing the form is how the IRS tracks an individual’s use of their lifetime gift and GST tax exemptions. The most common reasons for filing are making a gift to an individual that exceeds the annual exclusion or splitting gifts with a spouse.

If a couple splits a gift, they must file Form 709 to inform the IRS of this choice. For example, if one spouse gives a grandchild $38,000 and the couple treats it as a joint gift, they must file a return. Each spouse must file their own Form 709 to consent to the gift splitting.

To prepare Form 709, a filer needs to provide their own personal details and the following for each gift:

• The recipient’s name and address
• A clear description of the gift (e.g., “cash” or “shares of XYZ Corp.”)
• The date the gift was made
• The gift’s fair market value on that date

The gift tax return is due on the same date as the federal income tax return, which is April 15th of the year following the gift. Filing an extension for your income tax return also extends the deadline for filing Form 709.