What is 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. 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.
The amount that one individual can now give to another without triggering the federal gift tax.
How the Gift Tax Works
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 $15,000, the gift tax maximum in effect as of the 2018 tax year. This means that since 2018 an individual has been able to give another individual $15,000 or less per year, without incurring a gift tax.
Note that—even if they file a joint tax return—spouses can each give $15,000 to the same recipient, raising that gift to $30,000 per year. This enables wealthy couples to give substantial annual gifts to children, grandchildren, and others. This can be on top of, say, tuition paid directly to a grandchild's school or college, which comes under the gift tax exemption.