What is a 'Gift Tax'
A gift tax is a federal tax applied to an individual giving anything of value to another person. For something to be considered a gift, the receiving party cannot pay the giver full value for the gift, but may pay an amount less than its full value. It is the giver of the gift who is required to pay the gift tax. The receiver of the gift may pay the gift tax, or a percentage of it, on the giver's behalf in the event that the giver has exceeded his/her annual personal gift tax deduction limit.
BREAKING DOWN 'Gift Tax'
The following are generally excluded from gift tax:
1. Gifts to one's spouse.
2. Gifts to a political organization for use by the political organization.
3. Gifts that are valued at less than the annual gift tax exclusion for a given year.
4. Medical and educational expenses - payments made by a donor to a person or organization such as a college, doctor or hospital.
As the regulations applied to gift taxes are very complicated, it is best to check with your respective tax authorities if you have given anyone a gift valued at more than $14,000 "on or after January 1, 2013 (including 2014 and 2015)," according to the IRS.