Did you know the IRS has specific rules about how much gift money you can receive tax-free? It doesn’t matter if it’s a generous birthday check from your grandparents, a wedding gift from a relative, or financial help from a parent—there are limits on how much you can receive before taxes come into play.
Like all taxation, gift tax rules can be confusing, so at Remitly we’ve created this guide to help you understand tax on gifts, including the annual exclusion and lifetime exemption. You’ll learn which gifts are automatically tax-free, and we’ll provide some real-world examples of how these rules apply. Whether you’re giving or receiving a gift, this guide will help you avoid any nasty surprises.
Understanding tax on gift money
In the US, the gift tax is a federal tax applied to the transfer of money or property from one person to another without receiving anything of equal value, or anything at all, in return.
Of course most casual birthday or holiday gifts are small enough to fall well under the threshold—gift tax usually applies to large financial gifts, especially those between family members or people offering significant support.
One important thing to note straight away, and something many people don’t realize, is that gift tax is usually paid by the giver, not the recipient. For example, if your uncle gives you $30,000 as a birthday gift or to help you buy a house, he needs to report it to the IRS and he might have to pay tax on it.
Fortunately, there are clear rules that determine when a gift needs to be reported. Most everyday gifts will not trigger any tax. But when the value exceeds the annual exclusion limit, IRS reporting gets involved and there may be tax obligations.
The annual gift tax exclusion
Each year, the IRS sets a limit on how much money you can give to another without needing to report it or pay gift tax. This is called the annual gift tax exclusion. The amount is adjusted for inflation and often changes each year.
- For 2023, the limit was $17,000 per recipient.
- In 2024, it increased to $18,000.
- In 2025, it’s $19,000.
Now let’s look at some examples of how it applies:
- If your aunt gave you $16,000 in 2023, that was under the $17,000 limit, so no tax or paperwork would have been required.
- If she gave you $20,000 in 2023, only the extra $3,000 over the limit was subject to gift tax rules and would have required IRS reporting.
- In 2024, if someone gave you less than $18,000, it was fully excluded from gift tax.
- And in 2025, gifts less than $19,000 will fall under the exclusion.
The annual gift tax exclusion applies per person, per year. Your aunt could give $18,000 to you, $18,000 to your sibling, and $18,000 to a friend in 2025, all without tax consequences. So it’s quite generous, and allows givers who are able to support multiple people to do that without triggering gift tax.
Lifetime gift tax exemption
In addition to the annual exclusion, the IRS also allows a lifetime gift tax exemption. This is the total amount you can give away during your lifetime without owing federal gift tax.
This lifetime exemption is directly tied to the federal estate tax, which applies to the value of assets you leave behind when you pass away. Any amount you use from your lifetime exemption for gifting reduces the amount you can transfer tax-free from your estate.
Just like the yearly limit, the lifetime gift and estate tax exemption has been increasing slightly each year.
- For 2023, it was $12.92 million per individual
- For 2024, it rose to $13.61 million
- For 2025, it increased to $13.99 million
That means that in 2025, you can give away up to $13.99 million over your lifetime on top of the annual exclusion before facing any federal gift tax. Of course for most people that’s not something we’ll ever have to think about, but if you’re in that position, here’s what it means:
- If you gave someone $20,000 in 2023, the first $17,000 was excluded under the annual gift tax limit. The extra $3,000 counted against your $12.92 million lifetime exemption.
- In 2024, if you gave $25,000, the first $18,000 was excluded annually, and the remaining $7,000 went towards your $13.61 million exemption.
- In 2025, if you give $30,000, the first $19,000 is excluded, and the remaining $11,000 reduces your $13.99 million lifetime total.
Most people might not use the full lifetime exemption. But for high-net-worth individuals and families, understanding and using this lifetime exemption strategically can make a big difference to your estate tax liability later on.
Gifts that are automatically exempt
Beyond the annual exclusion and lifetime exemptions, the IRS also recognizes some gifts that are automatically exempt, no matter how much money it involves. They include:
Gifts to your spouse
You can give unlimited amounts of money or property to your spouse if they are a US citizen without triggering any gift tax. This includes real estate, investment accounts, or even business interests. If your spouse isn’t a US citizen, an annual limit of $190,000 applies in 2025. Anything above this cap counts against your lifetime exemption.
Direct payment for medical expenses
Paying someone’s medical bills is not considered a taxable gift as long as the payment is made directly to the healthcare provider. This includes costs like surgeries, doctor visits, hospital stays, and even health insurance premiums. The rules are strict on how the payment is passed on—if you give the money to the person to pay their own bills, it does count as a gift.
Tuition paid directly to a school
You can pay unlimited amounts for someone’s tuition without it counting as a taxable gift, but like with the healthcare payments, only if the payment is made directly—in this case to the school.
This exemption doesn’t cover related costs like books, accommodation, or transportation. This is often used by parents or grandparents to fund a child or grandchild’s education without reducing their annual exclusion or lifetime exemption.
Charitable contributions
Gifts to IRS-recognized charitable organizations are fully exempt from gift tax. These donations can be in the form of money, real estate, stocks, or other assets. In addition to being free of gift tax, they may also qualify for income tax deductions. So as well as supporting a cause that matters to you, these can actually be beneficial from a tax point of view.
Gifts to political organizations
Contributions to parties, candidates, or campaign committees are exempt from gift tax, as long as they’re used for political purposes. This includes donations to Political Action Committees (PACs), but not to individuals for personal use—even if they’re running for office.
Real-life gift tax scenarios and how the IRS treats them
Gifts aren’t just for birthdays—they can occur between family members for any one of a number of reasons. To help illustrate how things work, here are some everyday situations where people give financial support and how they’ll be treated under US gift tax rules:
A parent helping with a down payment on a home
A mother gives her daughter $50,000 toward a house down-payment. The annual gift tax exclusion of $19,000 is applied. However, if both parents give jointly, they can exclude up to $38,000 together in 2025.
That leaves:
- $31,000 over the limit if the gift comes from one parent,
- Or $12,000 over the limit if the gift comes from both parents.
This extra amount isn’t taxed right away, but has to be reported on IRS Form 709 (United States Gift and Generation-Skipping Transfer Tax Return), and it’ll count against the parents’ lifetime gift tax exemption.
Paying for a child’s wedding
A father covers $25,000 in wedding expenses for his son. It’s considered a gift for tax purposes because wedding costs don’t qualify for the same exemptions as tuition or medical expenses.
However, the first $19,000 qualifies for the annual gift tax exclusion, so that part doesn’t need to be reported. But the father does have to report the remaining $6,000 on a gift tax return, and that will count against his lifetime gift and estate tax exemption.
Grandparents contributing to a college fund
Grandparents give their grandchild $40,000 for college. If they make the payment directly to the school for tuition, it’s fully exempt from gift tax with no reporting required.
Helping a friend in financial need
A woman gives her best friend $22,000 after that friend loses her job. The giver has to report the $3,000 over the 2025 exclusion limit on her tax return. That said, she won’t owe any tax unless she’s exceeded her lifetime exemption. And if she hasn’t, $3,000 out of that $13.99 million lifetime total is barely going to register, so she can relax and help her friend.
Gifting a car to a relative
A man gives his niece a used car valued at $15,000. Because it’s under the 2025 exclusion limit, no tax is required and there’s no need to file Form 709.
However, while IRS rules don’t impose federal gift tax in this case, your state’s Department of Motor Vehicles (DMV) may require a gift affidavit or charge tax on vehicle transfers, depending on local laws. So check what the rules are where you live.
These examples show that the allowances for gifting are generous, but it’s up to you to ensure they’re reported correctly. Filing tax returns when you have to, and understanding the exclusions, can help you avoid unintended consequences.
Do you need to report received gift money?
In most cases, recipients of financial gifts don’t need to report it to the IRS. Even if you receive a large sum, you won’t pay tax or have to file a return. However, it’s smart to keep documentation showing the money was a gift, especially for large bank transfers, in case the IRS ever questions the source of the funds.
As we’ve said, the responsibility for reporting and any potential tax consequences falls on the person giving the gift, not the person receiving it. If a gift exceeds the annual exclusion amount, the giver has to report it to the IRS, typically by April 15 of the following year—so you get plenty of time. If you do find things getting a bit tight for getting your return done in time, you can request an extension using Form 4868.
Gift smart, give confidently
Understanding gift tax rules, like the annual exclusion limits and lifetime exemption thresholds, can help you make smarter financial decisions when giving money or property to loved ones.
Whether you’re helping with a down payment, covering tuition, or just giving out of love, a little planning and an understanding of the rules go a long way. This is a pretty complex area, so consider consulting a tax professional for personalized advice and reviewing IRS resources for further details.
FAQs
How do lifetime and annual gift limits work together?
The annual exclusion limit lets you give up to $19,000 per recipient in 2025 without needing to report it. But if the gift exceeds that, the extra amount is deducted from your lifetime exemption of $13.99 million. Think of the lifetime exemption as a long-term safety net. It covers larger gifts over time, even though you’ll need to file IRS Form 709 once you pass the annual threshold.
Can a couple gift money jointly?
Yes—this approach is often used to help children with major expenses like buying a home or starting a business. Married couples can combine their exclusions and gift up to $38,000 to a single recipient without any gift tax reporting, but if it’s coming from one account, for example, both parents would need to report that they’d split the gift on Form 709.
Does gift tax apply to international transfers?
US citizens giving money to foreign individuals may need to report the gift, but typically no gift tax applies. Large foreign gifts received by anyone in the US may need to be reported using IRS Form 3520. The rules can get complex, so it’s wise to explore IRS guidelines or consult a professional for specialized advice.
Can non-cash gifts trigger reporting too?
Yes—gifts aren’t limited to just money. Giving someone valuable assets like stocks, real estate, or a car can also count. The fair market value of the asset at the time of the gift is what matters. If that value exceeds the exclusion limit, the donor needs to report it, even if no cash changes hands. So check with a tax expert if you’re thinking about giving a gift that’s very valuable, but not cash.