What Is a Gift Tax Return?
A gift tax return is a federal tax return that must be filed under certain conditions by the giver of a gift. (It is not a tax on returning gifts.) The return is known as Form 709.
- Givers of gifts worth more than $16,000 for 2022 ($17,000 for 2023) to a single recipient must fill out a "gift tax return" with their annual tax return.
- Some gifts are exempt from this rule, including gifts given to pay tuition and medical bills.
- The gifts must exceed a lifetime amount of $12.06 million to a single recipient to be taxed as of 2022 ($12.92 million in 2023 to account for inflation).
How the Gift Tax Return Works
Individuals who give a gift that exceeds the annual or lifetime exempt gift limit established by the Internal Revenue Service (IRS) must fill out the form when filing their taxes. The annual exemption limit is $16,000 per gift for 2022 ($17,000 for 2023), and the lifetime exemption in 2022 is $12.06 million ($12.92 million for 2023). The lifetime exemption is inflation-indexed, so it will rise year-over-year.
For 2022, if an individual gifts anything over the limit, even $16,001, to a single recipient, that individual must fill out a gift tax return form. The return must be filled out because gifts above the exempt amount are subject to a gift tax.
The gift tax return is only used by those who have given over $16,000 in 2022 ($17,000 in 2023). As the regulations applied to gift taxes are very complicated, it is best to consult a professional as well as your local tax law. In order to avoid the gift tax, many people use estate planning, working with a financial planner, tax professional, or attorney to strategically choose when, how, and who gets the estate owner's money.
Who Files the Gift Tax Return and Who Pays the 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.
A gift tax return is a form that must be filed by a gift-giver if they give any amount over the gift tax exemption. Unless special arrangements have been made, it is always the gift-giver, not the recipient, who is responsible for paying the gift tax and for filing the gift tax return.
The gift tax return is IRS Form 709. 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 their lifetime gift exclusion limit.
The federal government allows married couples who file together to double the amount of their gift tax through a process called gift splitting. Married couples combine their individual allowances as if each contributed half of the amount.
For gift splitting to be official, both spouses must agree to the gift and specify the situation in which the gift was given when filing their taxes. A couple filing a gift tax return in 2022 could gift $32,000 before the giver needed to pay taxes on the amount (that amount increases to $34,000 in 2023).