The federal gift tax applies only to gifts above a yearly threshold, and most people never pay it

The federal gift tax is a tax on money or property you give to another person during your lifetime. The key fact: you do not owe gift tax on most gifts. The IRS sets an annual exclusion amount — the total value of gifts you can give to any one person in a calendar year without triggering a tax or filing requirement. For 2024, that amount is $18,000 per person. If you give $18,000 or less to one person in a year, no tax is due and you do not file a gift tax return.

The exclusion resets on January 1 each year. You can give $18,000 to as many people as you want in a single year without owing tax. A married couple can give $36,000 per person ($18,000 each) because each spouse has their own exclusion. Gifts to spouses and to charities are not subject to gift tax at all, regardless of amount.

Key Takeaways

  • You can give up to $18,000 per person per year (in 2024) without owing federal gift tax or filing a return.
  • Married couples can give $36,000 per person per year because each spouse has a separate $18,000 exclusion.
  • Gifts to your spouse or to may have access to charities are never subject to gift tax, no matter the amount.
  • If you give more than the annual exclusion to one person, you file Form 709 but usually do not pay tax — the excess counts against your lifetime exemption instead.
  • The lifetime exemption is $13.61 million per person in 2024, but this amount changes yearly and is set to drop in 2026.

What happens when you give more than $18,000 to one person

If you give $25,000 to your daughter in 2024, you have exceeded the annual exclusion by $7,000. You must file a federal gift tax return — Form 709 — to report the excess. Filing the form does not mean you owe tax that year. Instead, the $7,000 counts against your lifetime exemption, which is the total amount you can give away (above the annual exclusions) before owing any tax at all.

Your lifetime exemption for 2024 is $13.61 million. This means you could give away $13.61 million above your annual exclusions over your entire life before owing a single dollar in gift tax. Most people will never reach this threshold. The lifetime exemption is per person — a married couple has $27.22 million combined.

If you file Form 709 to report gifts over the annual exclusion, you are using up your lifetime exemption, but you are not writing a check to the IRS. The tax itself becomes due only if you exhaust your lifetime exemption entirely.

The lifetime exemption changes every year and drops in 2026

The lifetime exemption amount is adjusted annually for inflation. In 2023 it was $12.92 million; in 2024 it is $13.61 million. These numbers are set by federal law and change each January.

Important: the lifetime exemption is scheduled to drop sharply on January 1, 2026. Unless Congress acts, it will fall to roughly $7 million per person (adjusted for inflation). This means if you are planning large gifts, the year you give them matters. A gift made in 2025 uses your $13.61 million exemption; a gift made in 2026 uses a much smaller exemption. Some people with substantial wealth choose to make large gifts before 2026 to lock in the higher exemption.

When you actually owe gift tax money

You owe gift tax only if you have used up your entire lifetime exemption and then give away more money or property. Because the lifetime exemption is $13.61 million per person, this affects almost no one. The IRS estimates that fewer than 10,000 estates per year owe any estate or gift tax combined.

If you do owe gift tax, the rate is 40% of the amount over your exemption. So if you had already given away $13.61 million in your lifetime and then gave away $100,000 more, you would owe $40,000 in tax on that $100,000 gift. Again, this scenario is extremely rare.

Gifts that are never taxed, no matter the amount

Certain gifts fall outside the gift tax system entirely. Gifts to your spouse are unlimited — you can give your spouse any amount without owing tax or filing a return. Gifts to may have access to charities are also unlimited and never taxed. Medical and tuition payments paid directly to the provider (not to the person receiving care) do not count as gifts for tax purposes, even if they exceed the annual exclusion.

Payments for someone else's medical bills or tuition must go straight to the hospital, doctor's office, or school. If you give money to your grandchild and they use it to pay tuition, that counts as a gift. If you pay the university directly, it does not.

How to report gifts on your taxes

If all your gifts in a year are $18,000 or less per person, you do nothing. No form, no return, no filing. The annual exclusion is automatic.

If you give more than $18,000 to any one person in a year, you file Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) with your federal income tax return. You file it even if you owe no tax — it is a reporting requirement. Form 709 is available on the IRS website. You can file it yourself or have a tax professional prepare it. The form asks for the date of the gift, the recipient's name and address, and the fair market value of what was given.

State gift taxes are separate from federal gift tax. Only a few states have their own gift tax (Connecticut, Delaware, Illinois, Louisiana, Mississippi, Nevada, North Carolina, Pennsylvania, South Carolina, Tennessee, and Texas as of 2024, though this list changes). If you live in a state with a gift tax, you may owe state tax even if you owe no federal tax. Check your state's tax authority website for rules.

Gifts to minors and trusts

Gifts to minors count toward the annual exclusion the same way gifts to adults do. You can give $18,000 per year to your 10-year-old grandchild without owing tax. The money must be held for them (usually by a parent or guardian) until they reach the age of majority, but the gift itself is not taxed.

Gifts to trusts are treated differently and are more complex. A gift to a trust may not may have access to for the annual exclusion unless the trust is structured in a specific way (usually with what is called a "Crummey power"). If you are considering gifts to a trust, consult a tax professional or estate attorney, because the rules vary based on the trust's terms.

Frequently Asked Questions

Do I have to report gifts to the IRS even if I do not owe tax?

Only if the gift exceeds $18,000 to one person in a year. Then you file Form 709 to report it, even though you likely owe no tax. Gifts of $18,000 or less per person require no filing or reporting.

Can my spouse and I each give $18,000 to the same person in the same year?

Yes. Each spouse has a separate $18,000 annual exclusion, so together you can give $36,000 to one person without owing tax or filing a return. The exclusion is per giver, not per recipient.

What if I give someone a loan instead of a gift?

A genuine loan is not a gift and is not subject to gift tax. However, the IRS requires that loans above a certain amount charge interest at a minimum rate (the applicable federal rate, which changes monthly). If you lend money with no interest or below-market interest, the IRS may treat part of it as a gift. Document any loan in writing with a promissory note.

Does paying someone's credit card bill count as a gift?

Yes, if you pay their bill directly or give them money knowing they will use it to pay the bill. The payment counts as a gift toward the annual exclusion. The exception is if you pay a medical provider or school directly — those payments do not count as gifts.

What happens to my lifetime exemption if I do not use it?

Your lifetime exemption carries forward. If you give away $5 million in 2024, you still have $8.61 million left for future years. The exemption does not expire or reset — it accumulates over your lifetime. However, remember that the exemption drops in 2026 unless Congress changes the law.