# How much money can a person receive as a gift without being taxed?

When someone receives a monetary gift, they may wonder if they need to pay taxes on it. The general rule is that gift recipients do not need to pay income tax on gifts. However, there are some limitations on how much money a person can receive tax-free. Let’s take a closer look at gift tax laws and how much money a person can get as a gift before taxes come into play.

## What is considered a gift?

The IRS defines a gift as money or property that is given freely without expecting anything in return. Some key characteristics of a gift include:

• Given out of detached generosity – The giver does not expect repayment or benefit from the gift.
• Given without strings attached – The recipient is free to use the gift however they want.
• Irrevocable – Once given, a gift cannot be taken back by the giver.

Common monetary gifts include birthday gifts, wedding gifts, graduation gifts, and gifts to help with major purchases or expenses. As long as the gift is given without strings attached or expectation of repayment, the general rule is that the recipient does not have to pay taxes on it.

Under federal gift tax laws, a certain amount of money can be gifted each year without being subject to gift taxes. This is known as the annual gift tax exclusion. Here are some key points about the gift tax exclusion:

• The annual exclusion for 2022 is \$16,000 per individual recipient.
• This means up to \$16,000 can be gifted to any one person in 2022 without being taxable.
• The \$16,000 exclusion limit applies separately to each recipient. There is no limit on the total number of people who can receive \$16,000 gifts.
• Gifts exceeding the annual exclusion limit are subject to federal gift taxes paid by the gift giver.

For example, a mother can gift \$16,000 each to her son, daughter, and father – a total of \$48,000 gifted – without triggering gift taxes. As long as each individual recipient receives \$16,000 or less, the gifts are tax-free under federal law.

### Married Couples

The annual exclusion for married couples is effectively doubled. Spouses can combine their individual \$16,000 annual limits into one joint gift. This means:

• A married couple can gift up to \$32,000 to any one recipient tax-free.
• Splitting the gift must be elected on a gift tax return.
• Total joint gifts exceeding \$32,000 to any recipient are subject to gift taxes.

For example, a married couple can gift \$32,000 to their niece for college without owing gift taxes. As long as they properly elect to split the gift on the return, it falls within their joint annual exclusion.

There are some exceptions and additional exclusions that allow even larger tax-free gifting in certain scenarios. Some key examples include:

### Educational Expenses

There is an unlimited gift tax exclusion for money given to pay for someone’s educational expenses. Educational expenses include tuition, books, fees, and related costs. This exclusion applies to:

• Payments made directly to an educational institution.
• Payments made to the individual recipient, provided the money is used for education expenses.

For example, grandparents can pay their grandchild’s college tuition or other higher education expenses with no gift tax implications.

### Medical Expenses

Gifts can be made to pay for an individual’s medical expenses without being subject to gift taxes. The medical exclusion applies to:

• Payments to health care providers for medical treatment.
• Payments to the individual recipient provided the money is used for medical costs.

So if parents gift money to a child to pay for treatments related to a health condition, that money falls under the medical expenses exclusion.

There is an unlimited exclusion for gifts made to qualified charities and nonprofit organizations. Any individual can make tax-deductible charitable contributions and charitable bequests without incurring gift tax.

## Annual Gift Tax Exclusion FAQs

### Does the annual exclusion apply per person or per year?

The annual gift tax exclusion applies per person per year. Each individual recipient can receive up to the annual limit (\$16,000 in 2022) from any one giver each year without triggering gift taxes.

### Can unused annual exclusion be carried over?

No, the annual exclusion cannot be carried over to the next year if unused. The exclusion applies on a per year basis. For example, if \$10,000 is gifted to a recipient in 2022, the giver cannot gift an additional \$6,000 tax-free in 2023 to use up the remaining 2022 exclusion.

### Is a gift tax return required?

Generally, no gift tax return is required if gifts fall under the annual exclusion amount. A Form 709 gift tax return is only required if an individual makes gifts exceeding the annual exclusion limits or makes gifts requiring special treatment, such as splitting gifts with a spouse.

No, gift recipients do not have to pay income taxes on gifts. The general rule is that gifts received are not included in the recipient’s gross income. The giver may be responsible for gift taxes in some cases, but the recipient is not responsible for income taxes on gifts.

Separate from the annual gift tax exclusion is the lifetime federal gift and estate tax exemption. This is an aggregate limit on the amount each person can gift over their lifetime before owing gift taxes. Some key points on the lifetime exemption include:

• The lifetime exemption amount for 2022 is \$12.06 million.
• This limit is per individual giver over their entire lifetime.
• Any unused exemption can be used to offset estate taxes upon death of the giver.

### Portability for Married Couples

The lifetime gift and estate tax exemption is portable for married couples. This means:

• Any unused exemption can be transferred from a deceased spouse to a surviving spouse.
• This effectively doubles the lifetime exemption amount for married couples.
• Proper estate planning and tax filing is required to claim portability.

With portability, a married couple can potentially exempt up to \$24.12 million in lifetime gifts from federal taxes (assuming no prior gifting by either spouse). This provides flexibility in estate planning for married couples.

If an individual gives monetary gifts exceeding the annual exclusion limits, they are responsible for filing a gift tax return. Key facts about gift tax filing include:

• Form 709 is used to report non-excluded gifts and calculate potential gift taxes owed.
• The return is due by April 15 following the year when the gift was given.
• No money is due with the return unless gift taxes are applicable.
• Gift splitting between spouses must be elected on Form 709.

It is important to consult a tax professional or estate planning attorney if gifting more than the annual exclusion amounts. They can provide guidance on gift tax returns and strategies to minimize taxes.

While federal tax law determines treatment of gifts for federal tax purposes, state laws come into play as well. Some states impose state-level gift taxes separate from federal rules. Key state gift tax considerations include:

• Connecticut, Minnesota, Rhode Island have state gift taxes with lower exemptions than federal law.
• Some states tie their gift taxes to federal statutes.
• Other states impose inheritance or estate taxes at the recipient level.
• Exemptions, exclusions and tax rates vary by state.

Those making substantial gifts should review their state’s current gift and estate tax laws to understand total tax implications. Both state and federal gift and estate taxes may apply in certain situations.

There are a number of strategies that can be used to gift money tax-free or minimize potential gift taxes. Some options to consider include:

Gift amounts up to the annual exclusion limit to each desired recipient every year. This avoids dipping into the lifetime exemption amount.

### Paying medical and education expenses

Pay these costs directly to the provider or institution. There is no limit on exclusions for medical and education gifts.

Take advantage of gift splitting between married spouses. This doubles the annual limits and leverages both spouses’ lifetime exemptions.