Federal Gift Tax: Who Pays It and When
Gift tax is the source of a lot of misunderstandings. Not the least of which is who pays the tax on a gift.
Who Pays the Tax?
Contrary to widely held opinion, it is the giver, not the recipient, who pays federal tax on a gift. But the feds won’t tax every gift, and when they do tax the giver, they look at the amount given over a lifetime.
Currently, donors only pay tax when their lifetime gifts total more than $15 million. For married couples, each spouse can give up to $15 million without paying tax.
What’s more, that $15 million cap pertains only what you are required to report to the IRS. An individual can give up to $19,000 per person to as many individuals as you like without it counting against your lifetime limit or requiring any tax reporting. Again, for married couple the total per-person limit is $38,000.
And the IRS will tax only the portion over that $19,000-per-person limit. If your cumulative gifts over that limit top the $15 million cap, you pay marginal tax rates ranging from 18 to 40 percent.
What Else is Exempt?
- Spousal gifts: Married couples can make unlimited tax-free transfers if the recipient is a U.S. citizen.
- Education and Medical Expenses: You can make unlimited tax-free payments for another person’s tuition or medical bills, provided you pay the institution directly. And tuition you pay could earn you a tax break[https://andrewstaxaccounting.com/education-tax-breaks/] to boot.
- Charities: Donations to IRS-approved charities are excluded.
Links
The IRS has a gift tax FAQ on its website.
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