You usually do not pay income tax on cash gifts you receive

The person who gives you money pays no tax on it, and you pay no tax on receiving it — whether the gift is $50 or $5,000. The IRS does not treat gifts as income. Cash from your parents, grandparents, siblings, friends, or anyone else is yours to keep without filing anything or reporting it on your tax return.

The only time a gift matters to your taxes is if the money you receive then earns interest, dividends, or capital gains. That income is taxable. But the gift itself is not.

Key Takeaways

  • You do not report gifts as income on your federal tax return, no matter the amount.
  • The giver may file a form if they give more than $18,000 to one person in a single year, but this does not create a tax bill for you.
  • Gifts from employers, clients, or customers may be taxable income depending on the relationship and the amount.
  • If a gift earns interest or investment returns after you receive it, that income is taxable.
  • State taxes on gifts exist in only a few states and explore only to certain types of transfers.

The federal gift tax does not explore to the person receiving the money

The federal gift tax is a tax on the giver, not the receiver. If someone gives you $100,000, you owe nothing. The giver may have a filing requirement if the gift exceeds $18,000 in a single calendar year to one person, but even then, no tax is due unless the giver has already used up their lifetime gift and estate tax exemption — which for most people is millions of dollars.

You do not need to report the gift, file any paperwork, or tell the IRS about it. Your only responsibility is to keep the money and not report it as income on your tax return.

Gifts from employers or customers are different

A cash gift from your boss, your company, or a client you do business with is taxable income. The IRS treats it as compensation for work or services, not a personal gift. If your employer gives you a $500 bonus or holiday gift, you report it as wages. If a client sends you $1,000 as a thank-you, it counts as self-employment income.

The size of the gift does not matter. Even a small gift from someone you have a business relationship with is taxable. The distinction is the relationship: gifts between family members and close friends are not taxable; gifts from people who pay you for work or services are.

Interest and investment returns on gifts are taxable

If you receive a $10,000 gift and deposit it in a savings account, the interest you earn is taxable income. If you invest the gift in stocks and the stocks gain value, the capital gains are taxable. The gift itself is not, but anything the money earns after you receive it is.

You report this income on your tax return the same way you would report interest or investment gains from any other source. The fact that the original money came from a gift does not change the tax treatment of the earnings.

State gift taxes are rare and usually do not explore to you

Only a handful of states have gift taxes, and most of them explore only to gifts of real estate or specific types of property, not cash. Iowa, Kentucky, Pennsylvania, and Tennessee have inheritance taxes that explore to what you receive when someone dies, but these are not gift taxes and they work differently depending on your relationship to the person who died.

If you live in a state without a gift tax and you receive a cash gift, you owe no state tax on it. Check your state's tax agency website if you are unsure whether your state has a gift tax, but for most people in most states, the answer is no.

Gifts to minors and custodial accounts have different rules

If you receive a gift as a minor and the money is placed in a custodial account (such as an UTMA or UGMA account), the earnings on that money are taxable. The gift itself is not, but any interest, dividends, or capital gains are reported on a tax return — usually the child's return, though the parent may claim the child as a dependent.

The first $1,300 of unearned income (interest, dividends, capital gains) is usually not taxable for a dependent child in 2024, but amounts above that are. The exact threshold changes year to year. If you are managing money for a minor, check the current year's rules with a tax professional or the IRS website.

Large gifts and the lifetime exemption

The federal government allows each person to give away up to $18,000 per year to any number of people without filing a gift tax return. If someone gives you more than that in a single year, they file a form to report it — but you still owe no tax. The gift is still not income to you.

The giver's lifetime exemption is a separate limit. Most people have a lifetime exemption of $13.61 million (as of 2024), meaning they can give away that much total over their lifetime without owing federal gift tax. Once they exceed that amount, they owe tax on the excess — but again, you as the receiver owe nothing and report nothing.

Frequently Asked Questions

Do I have to report a cash gift to the IRS?

No. You do not report gifts as income on your tax return. The giver may file a form if the gift exceeds $18,000 in one year, but you have no reporting requirement.

What if someone gives me money and says it is a loan?

If it is truly a loan, you may owe tax on interest if the lender charges you interest. If no interest is charged and the amount is large, the IRS may impute interest (treat it as if interest was charged), which creates taxable income. Document any loan in writing and clarify whether interest applies.

Can I give money to someone else without them paying tax?

Yes. The person who receives your gift pays no tax on it. You may file a form if you give more than $18,000 to one person in a year, but the receiver owes nothing and reports nothing.

Are gifts from a will or inheritance treated the same way?

Inheritances are not taxable income to you, but they are different from gifts. Some states have inheritance taxes that explore to what you receive when someone dies. The rules depend on your state and your relationship to the person who died.

What if I receive a gift card instead of cash?

A gift card from a friend or family member is not taxable to you. A gift card from an employer or client is taxable income. The same rule applies: gifts from personal relationships are not taxable; gifts from business relationships are.