What the federal gift tax rate is

The federal gift tax rate is 40 percent on gifts above a certain threshold. That threshold changes each year based on inflation. For 2024, you can give up to $18,000 to any one person without triggering the tax. If you give more than that in a single year, the amount over $18,000 is subject to the 40 percent tax — but only if you have not already used your lifetime exemption.

The lifetime exemption is a separate limit that lets you give away much larger amounts without paying tax. For 2024, that exemption is $13.61 million per person. Most people never reach this limit, which is why gift tax rarely affects ordinary giving. The 40 percent rate applies only to the portion of a gift that exceeds both the annual threshold and your remaining lifetime exemption.

Key Takeaways

  • The federal gift tax rate is 40 percent, but it applies only to gifts above $18,000 per person per year (2024 amount, adjusted annually for inflation).
  • You have a lifetime exemption of $13.61 million (2024) that shields large gifts from tax, so most people never pay gift tax at all.
  • Gifts to spouses, charities, and direct medical or tuition payments are not subject to gift tax regardless of amount.
  • You must file a gift tax return (Form 709) if you give more than the annual threshold to one person, even if you owe no tax.
  • State gift tax rates vary by state — some states have no gift tax, while others tax gifts at rates between 3 and 16 percent.

Annual threshold versus lifetime exemption

These two numbers work together but serve different purposes. The annual threshold ($18,000 in 2024) is the amount you can give to one person each calendar year without filing paperwork or using your lifetime exemption. You can give this amount to as many people as you want — the limit is per recipient, not per year total.

The lifetime exemption is a separate pool of money you can give away over your entire life before the 40 percent tax kicks in. When you give more than the annual threshold to one person, the excess counts against your lifetime exemption. Once you exhaust your lifetime exemption, any additional gifts above the annual threshold are taxed at 40 percent. The lifetime exemption amount changes with inflation and also changes based on federal law — it is scheduled to drop significantly after 2025 unless Congress acts.

Gifts that are never taxed

Certain gifts are completely exempt from federal gift tax, no matter the amount. Gifts to your spouse (if your spouse is a U.S. citizen) have no limit and no tax. Gifts to charities registered with the IRS also have no limit. These exemptions exist outside the annual threshold and lifetime exemption — they do not count against either one.

You can also pay someone's medical bills or tuition directly to the provider without triggering gift tax, as long as you pay the medical facility or school directly rather than giving money to the person. This is a common way parents and grandparents help with education costs. The payment must go straight to the institution, not to the student.

How the 40 percent rate applies in practice

The 40 percent tax is calculated only on the portion of a gift that exceeds both the annual threshold and your remaining lifetime exemption. Here is a concrete example: suppose you give $50,000 to your adult child in 2024. The first $18,000 is covered by the annual threshold and owes no tax. The remaining $32,000 counts against your $13.61 million lifetime exemption. Since you almost certainly have not used most of your lifetime exemption, this $32,000 straightforward reduces your remaining exemption — you owe no tax.

Now suppose you have already given away $13.61 million over your lifetime and have no exemption left. If you give another $50,000 to your child, the first $18,000 is still covered by the annual threshold. The remaining $32,000 is now subject to the 40 percent tax. You would owe $12,800 in federal gift tax on that gift. You are responsible for paying this tax, not the recipient.

State gift tax rates

Some states impose their own gift tax in addition to federal tax. The rates and rules vary significantly by state. Iowa, Kentucky, Maryland, New Jersey, and Pennsylvania have state gift taxes, with rates ranging from 3 to 16 percent depending on the state and the relationship between giver and recipient. Other states have no gift tax at all.

If you live in or are giving to someone in a state with a gift tax, you may owe both federal and state tax on the same gift. State exemptions and thresholds are usually lower than federal ones. Check your state's tax authority website or speak with a tax professional if you are making large gifts and live in a state that taxes gifts.

When you must file a gift tax return

You must file Form 709 (the federal gift tax return) if you give more than $18,000 to any one person in a calendar year, even if you owe no tax because you have not exhausted your lifetime exemption. This filing requirement exists so the IRS can track your lifetime exemption usage. Filing does not mean you owe money — it means you are documenting the gift and how it affects your exemption.

The important date to file Form 709 is April 15 of the year following the gift, the same as your income tax return. If you file your income tax return early, you can file Form 709 at the same time. If you miss the important date, you may face penalties, so it is important to track large gifts and file on time if required.

How gift tax interacts with estate tax

Gift tax and estate tax share the same lifetime exemption. Money you give away during your life counts against the exemption you have left when you die. If you use $1 million of your lifetime exemption on gifts while living, your estate will have $12.61 million of exemption remaining (using 2024 numbers). This is why some people use their lifetime exemption strategically — gifts made during life remove assets from your taxable estate and may reduce estate tax owed by your heirs.

The lifetime exemption amount is scheduled to drop significantly after 2025 unless Congress changes the law. Currently, the exemption is set to fall to roughly $7 million per person (adjusted for inflation) starting in 2026. This potential change is why some people with substantial assets consider making large gifts before the exemption shrinks.

Frequently Asked Questions

Do I owe gift tax if I give money to my child?

Not unless you give more than $18,000 in a single calendar year to that child. If you stay at or below $18,000 per year per child, no tax is owed and no return is required. If you exceed $18,000, you must file a return, but you likely still owe no tax because the excess counts against your $13.61 million lifetime exemption.

What if I give a gift to multiple people in the same year?

The $18,000 annual threshold applies per person, not per year total. You can give $18,000 to each of five children in the same year with no tax or filing requirement. The limit resets on January 1 each year.

Can I split a gift with my spouse to avoid tax?

Yes. If you are married, you and your spouse can each give up to $18,000 to the same person in the same year, for a total of $36,000, without either of you owing tax. This is called gift splitting. Both spouses must agree to split the gift, and you must file Form 709 to report it, but no tax is owed.

Is a gift from my parents taxed to me as income?

No. Gifts are not income to the person who receives them, so you do not report a gift on your income tax return. The gift tax is paid by the person who gives the gift, not the recipient. This is true for federal tax and for most states.

What happens if I give a large gift and then die soon after?

The gift still counts against your lifetime exemption. If you gave away $5 million and then died six months later, that $5 million is subtracted from your lifetime exemption, reducing the amount your estate can pass tax-free. Gifts made within three years of death do not automatically come back into your taxable estate, but they do reduce your remaining exemption.