How Much Money Can You Give Your Children Tax Free?

A gift tax is a federal tax applied to the transfer of property from one individual to another, where the giver receives nothing, or less than full value, in return. This tax typically falls upon the donor, not the recipient, and is distinct from an estate tax, which applies after death. When a gift is considered “tax-free,” it signifies that the transfer does not create a gift tax liability for the donor and is not counted as income for the person receiving the gift. This article clarifies the various methods and limits for giving money and other assets to children without triggering federal gift tax obligations.

Annual Gift Tax Exclusion

The annual gift tax exclusion allows an individual to give a specific amount of money or property to any other individual each year without incurring gift tax or utilizing their lifetime gift tax exemption. For 2024, this annual exclusion amount is $18,000 per recipient. A donor can give up to $18,000 to each child, and to any number of other individuals, within a calendar year without gift tax consequences.

This exclusion applies on a “per donor, per recipient, per year” basis. For example, one parent can give $18,000 to each child without tax implications. If a married couple makes gifts, they can combine their individual exclusions through “gift splitting.” This allows them to jointly give double the annual exclusion amount, or $36,000, to a single recipient in 2024, without using their lifetime exemption or incurring gift tax.

Gifts made within this annual exclusion limit do not need to be reported to the Internal Revenue Service (IRS). The recipient of the gift never pays income tax on the amount received.

Other Tax-Free Gifts

Beyond the annual gift tax exclusion, certain types of transfers are entirely exempt from gift tax, regardless of their amount. Understanding these exceptions can provide additional avenues for tax-free financial support.

Direct payments for qualified medical expenses are one such exemption. This applies when payments are made directly to a medical care provider, such as a hospital or doctor, for another person’s medical care. The payment must go directly to the institution or provider, not to the individual.

Similarly, direct payments for educational expenses can be tax-free. This exemption covers tuition payments made directly to an educational institution, such as a college or university. However, this exception does not extend to payments for room and board, books, supplies, or other living expenses; it is strictly limited to tuition.

Gifts between U.S. citizen spouses generally qualify for an unlimited marital deduction, meaning they are entirely tax-free and not subject to gift tax limits. This allows for unlimited transfers of assets between citizen spouses without gift tax implications. Gifts made to qualifying political organizations and contributions to qualified charities are also generally exempt from gift tax. These exemptions allow for significant transfers without triggering gift tax liability, provided strict conditions are met.

Lifetime Gift and Estate Tax Exemption

While the annual gift tax exclusion permits a certain amount of tax-free giving each year, gifts exceeding this yearly limit begin to count against a larger cumulative amount known as the lifetime gift and estate tax exemption. This exemption applies to the total value of gifts made during a person’s lifetime that exceed the annual exclusion, as well as the value of their estate at death. For 2024, this exemption is $13.61 million per individual. For 2025, this amount is set to increase to $13.99 million per individual.

Any gifts made in a calendar year that exceed the annual exclusion amount will reduce this lifetime exemption. For example, if an individual gives a child $28,000 in 2024, the first $18,000 is covered by the annual exclusion, and the remaining $10,000 reduces their lifetime exemption. Federal gift tax is only owed if an individual’s cumulative taxable gifts during their lifetime, combined with their estate value at death, surpass this lifetime exemption amount. Due to the high exemption amount, most individuals will never pay federal gift tax during their lifetime. Married couples can also combine their exemptions, allowing a surviving spouse to use any unused portion of a deceased spouse’s exemption through portability provisions.

Reporting Requirements

Even if no gift tax is owed, certain gifts must be reported to the IRS on Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return. This form tracks gifts that count against an individual’s lifetime gift and estate tax exemption. Filing Form 709 does not mean gift tax is due, but informs the IRS about transfers that could reduce the available lifetime exemption.

Form 709 is required if an individual makes a gift to any one person that exceeds the annual gift tax exclusion amount in a calendar year. For example, a gift in 2024 over $18,000 to a single recipient must be reported. Married couples who split gifts must also file Form 709 to make this election, even if individual amounts are below the annual exclusion. Gifts of “future interest,” where the recipient’s enjoyment is delayed, generally require reporting regardless of the amount. The deadline for filing Form 709 is typically April 15th of the year following the gift.