The federal gift tax rate is 40 percent, but 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 tax rate is a flat 40 percent — but that rate only applies to gifts above a certain threshold, and that threshold is high enough that most Americans will never reach it.

For 2024, you can give up to $18,000 per person per year without triggering any tax or paperwork. If you are married, you and your spouse can each give $18,000 to the same person, for a combined $36,000. Gifts below that amount are not taxed and do not need to be reported to the IRS.

The real limit is much higher still. Over your lifetime, you have a separate exemption of $13.61 million (for 2024). Gifts above the annual limit use up this lifetime exemption, but you do not owe tax until you exceed the lifetime total. After that, the 40 percent rate applies to anything over the limit.

Key Takeaways

  • The federal gift tax rate is 40 percent, but it only applies to gifts above $13.61 million in your lifetime (as of 2024).
  • You can give $18,000 per person per year with no tax or reporting required, or $36,000 if you are married.
  • Gifts to spouses, charities, and for medical or education expenses do not count toward the limit and are never taxed.
  • The lifetime exemption amount changes each year and is scheduled to drop to $7 million per person in 2026 unless Congress acts.
  • You only owe gift tax if you exceed both the annual limit and the lifetime exemption in the same year.

Annual exclusion: the $18,000 per person per year rule

The annual exclusion is the amount you can give to any one person in a calendar year without filing a gift tax return or using any of your lifetime exemption. For 2024, that amount is $18,000 per recipient. The amount increases every few years to keep pace with inflation; it was $17,000 in 2023.

The key word is per person. You can give $18,000 to your daughter, $18,000 to your son, $18,000 to your best friend, and $18,000 to your neighbor all in the same year, and none of it is taxed. If you are married, your spouse has their own $18,000 exclusion for each person, so a married couple can give $36,000 to one child without tax.

The exclusion applies to gifts of cash, property, investments, or anything else of value. It resets on January 1 each year. If you give someone $20,000 in December, the $2,000 over the limit counts against your lifetime exemption, but you do not owe tax on it unless you have already used up your $13.61 million lifetime total.

Lifetime exemption: $13.61 million per person in 2024

Above the annual exclusion sits your lifetime exemption, which is the total amount you can give away over your entire life before the 40 percent tax kicks in. For 2024, that amount is $13.61 million per person. If you are married, you and your spouse each have your own $13.61 million exemption.

Gifts that exceed the annual exclusion use up your lifetime exemption dollar for dollar. If you give someone $50,000 in a single year, the first $18,000 is covered by the annual exclusion. The remaining $32,000 counts against your $13.61 million lifetime total. You do not owe tax on that $32,000, but it reduces the amount you can give away tax-free for the rest of your life.

The lifetime exemption is also used when you die. Any assets in your estate above the exemption amount are subject to the 40 percent estate tax. This is why the lifetime exemption and the estate tax exemption are the same number — they share the same pool of tax-free giving.

What gifts are never taxed, no matter the amount

Certain gifts fall outside the tax system entirely and do not count toward either the annual exclusion or the lifetime exemption. These are called unlimited exclusions, and they let you give away as much as you want without any tax consequence.

Gifts to your spouse are never taxed, as long as your spouse is a U.S. citizen. You can give your spouse $1 million, $10 million, or any amount, and there is no gift tax. Gifts to charities that are registered with the IRS are also never taxed. Payments made directly to a medical provider for someone else's medical bills do not count as taxable gifts, nor do payments made directly to a school for tuition. The key is that the money goes straight to the provider or school, not to the person receiving the care.

Political contributions to candidates and committees are also unlimited and never taxed as gifts. The same applies to gifts to certain types of trusts for disabled people.

When you actually owe the 40 percent tax

You owe gift tax only when you give away more than your lifetime exemption in total. Because the lifetime exemption is $13.61 million, and most people give away far less than that over their lives, the 40 percent rate applies to very few people.

The tax is calculated on the amount over the exemption. If you have given away $13.61 million over your lifetime and then give away another $100,000, you owe 40 percent of that $100,000, which is $40,000. You file Form 709 with the IRS to report the gift and calculate the tax owed.

The person receiving the gift does not pay the tax — the person giving it does. The recipient receives the full amount and owes no income tax on it. Gifts are not considered income to the recipient under federal tax law.

The lifetime exemption is scheduled to change in 2026

The current $13.61 million lifetime exemption is set to expire on December 31, 2025. Starting January 1, 2026, the exemption is scheduled to drop to approximately $7 million per person (adjusted for inflation), unless Congress passes new legislation to extend or change it.

This means that if you are planning large gifts or transfers of property, the year you make the gift matters. A gift made in 2025 uses the $13.61 million exemption. A gift made in 2026 would use the lower exemption. Some people with substantial assets have accelerated their giving into 2024 and 2025 to take advantage of the higher exemption before it drops.

Congress could change this schedule at any time, so the future exemption amount is not certain. If you are considering gifts of more than a few million dollars, it is worth checking the current rules before you proceed.

State gift taxes and other considerations

The federal gift tax is separate from state taxes. Most states do not have a gift tax, but a few do. Connecticut, Delaware, Louisiana, North Carolina, and Tennessee have estate taxes that can affect large transfers, though they do not have separate gift taxes. If you live in one of these states or are giving property located in one of them, check your state's rules.

Gifts of certain types of property — like real estate or investments that have gone up in value — can have other tax consequences even if they are not subject to gift tax. When you give away an asset, the recipient takes on your original cost basis, which can affect how much capital gains tax they owe if they later sell it. This is a separate issue from gift tax, but it is worth understanding if you are giving away investments or property.

Frequently Asked Questions

Do I have to report gifts under $18,000?

No. Gifts under the annual exclusion ($18,000 per person in 2024) do not require any filing or reporting to the IRS. You can give as many gifts under that amount as you want without any paperwork. Only gifts above the annual exclusion require you to file Form 709.

If I give my child $50,000, do they owe income tax on it?

No. Gifts are not considered income to the recipient, so your child owes no federal income tax on the $50,000. The gift tax, if any, is your responsibility as the giver, not theirs. The $50,000 is also not subject to gift tax if you have not exceeded your lifetime exemption.

Can I give my spouse unlimited amounts without gift tax?

Yes, as long as your spouse is a U.S. citizen. Gifts between spouses are unlimited and never taxed. You can give your spouse any amount of money or property at any time without triggering gift tax or using your lifetime exemption.

What happens if I give away more than $13.61 million in my lifetime?

Any gifts above your lifetime exemption are subject to the 40 percent gift tax. You owe the tax when you file Form 709 with the IRS. The person receiving the gift does not pay the tax — you do as the giver.

Does paying someone's medical bills count as a taxable gift?

Only if the money goes directly to the medical provider. If you pay a doctor, hospital, or dentist directly for someone else's care, that payment is not a taxable gift and does not count toward your limits. If you give the person cash to pay their own medical bills, it counts as a regular gift subject to the annual exclusion.