The federal gift tax rate and how it works

The federal gift tax is a 40% tax on gifts above a certain threshold. That threshold — called the annual exclusion — lets you give money or property to other people without triggering the tax. For 2024, you can give up to $18,000 per person per year without filing anything or owing tax. In 2025, that amount rises to $19,000 per person per year.

If you give more than the annual exclusion to one person in a single year, you file Form 709 with the IRS. You do not pay tax on the excess when ready. Instead, the excess counts against your lifetime exemption — a much larger pool of money you can give away tax-free over your entire life. For 2024, your lifetime exemption is $13.61 million. In 2025, it rises to $13.99 million. You only owe the 40% tax if your total lifetime gifts exceed that exemption.

The annual exclusion resets every January 1. Married couples can combine their exclusions, so a married couple can give $36,000 per person per year in 2024 without filing or using lifetime exemption. This applies whether you file taxes jointly or separately.

Key Takeaways

  • You can give $19,000 per person per year in 2025 without filing a gift tax return or owing any tax.
  • Gifts above the annual exclusion do not trigger when ready tax but count against your $13.99 million lifetime exemption in 2025.
  • The 40% tax only applies if your total lifetime gifts exceed your lifetime exemption amount.
  • Married couples can each use their own annual exclusion and lifetime exemption, effectively doubling the amounts.
  • The annual exclusion and lifetime exemption amounts change each year based on inflation.

What counts as a taxable gift

A gift is any transfer of money or property where you receive nothing of equal value in return. Cash gifts count. So do gifts of real estate, vehicles, artwork, stocks, or jewelry. Forgiving a loan also counts as a gift of the amount forgiven.

Some transfers do not count as gifts at all. Payments made directly to a school or medical provider for someone else's tuition or medical bills are not gifts — they are excluded from the gift tax entirely, with no limit on the amount. Gifts to your spouse (if your spouse is a U.S. citizen) have no limit and no tax. Gifts to political organizations and charities also have no limit.

Gifts to your children or grandchildren count as regular gifts subject to the annual exclusion. A $25,000 gift to your adult child in one year means $6,000 of it (in 2025) counts against your lifetime exemption. The remaining $19,000 falls within the annual exclusion and does not count against anything.

When you file Form 709 and what happens next

You file Form 709 (United States Gift Tax Return) if you gave more than the annual exclusion to any one person in a calendar year. You file it with your federal income tax return by April 15 of the following year. Filing does not mean you owe tax — it means you are reporting the excess gift and explore it to your lifetime exemption.

The IRS reviews your Form 709 to verify the amounts and check your lifetime total. If your lifetime gifts still fall below your lifetime exemption, you owe nothing. The form straightforward creates a record. If your lifetime gifts eventually exceed your exemption (which is rare, given how large the exemption is), the IRS will calculate the 40% tax owed on the excess.

You do not need to file Form 709 for gifts within the annual exclusion, even if you give to multiple people. You also do not file if you gave more than the exclusion but your spouse consents to split the gift with you on the return, bringing each of your portions within the limit.

How the lifetime exemption works across your life

Your lifetime exemption is a single pool of tax-free giving you can use over your entire life. Every gift above the annual exclusion draws from that pool. Once you use it up, any additional gifts above the annual exclusion are taxed at 40%.

The lifetime exemption amount changes each year. It was $12.92 million in 2023, $13.61 million in 2024, and $13.99 million in 2025. The IRS adjusts it annually for inflation. If you give away $5 million during your lifetime, you have used $5 million of your exemption and have roughly $8.99 million remaining (using 2025 figures).

Your lifetime exemption is separate from your spouse's. If you are married, each of you has your own $13.99 million exemption in 2025. You do not share a single pool. However, married couples can use a strategy called gift splitting on Form 709 to treat a gift from one spouse as if it came equally from both, which can help preserve exemption.

The difference between gift tax and estate tax

The federal gift tax and the federal estate tax share the same lifetime exemption. Gifts you make during your life count against the same $13.99 million pool that your estate uses after you die. If you give away $5 million in gifts during your lifetime, your estate's exemption is reduced by $5 million.

This matters because the lifetime exemption is temporary. Congress set it to expire at the end of 2025. Starting in 2026, the exemption is scheduled to drop to roughly $7 million per person (adjusted for inflation), unless Congress extends or changes the law. Gifts made now use the higher 2025 exemption; gifts made in 2026 and later will use the lower exemption.

Estate tax applies to the total value of everything you own when you die. If your estate exceeds the exemption at that time, your heirs owe 40% tax on the excess. Gifts you made during life reduce the exemption available to your estate, so large gifts can indirectly increase the estate tax your heirs face.

State gift taxes and other variations

The federal gift tax is separate from state gift taxes. Most states do not have a gift tax, but a few do. Connecticut, Delaware, Illinois, Louisiana, Mississippi, North Carolina, and Tennessee have estate taxes that can affect large transfers. New York has an estate tax. These state taxes have their own exemptions and rates, which vary by state and change over time.

Some states tax gifts made during life; others tax only what you leave behind at death. If you live in or give property to someone in a state with a gift or estate tax, you may owe tax to that state even if you owe nothing to the federal government. The rules differ significantly by state, so check your state's tax authority website if you are making large gifts.

Frequently Asked Questions

Do I owe gift tax if I give my child $25,000 in one year?

No federal gift tax is owed. In 2025, you can give $19,000 per person per year without tax. The extra $6,000 counts against your lifetime exemption, but you do not owe tax unless your total lifetime gifts exceed $13.99 million. You do file Form 709 to report the $6,000 excess.

What if I give $10,000 to five different people in the same year?

You owe no federal gift tax. Each $10,000 gift falls within the $19,000 annual exclusion per person in 2025. You do not file Form 709 because none of the gifts exceeded the annual exclusion. The annual exclusion applies separately to each recipient.

Can my spouse and I combine our annual exclusions to give one large gift?

Yes, through gift splitting. If you are married and one spouse gives $38,000 to one person in 2025, you can file Form 709 to treat it as if each spouse gave $19,000. This keeps the entire gift within both annual exclusions. Both spouses must consent to the split on the return.

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

No, if you pay the bill directly to the medical provider. Payments made directly to a school for tuition or to a hospital or doctor for medical care are not gifts and have no limit. If you give the person money and they pay the bill themselves, it counts as a regular gift subject to the annual exclusion.

What happens to my lifetime exemption if I do not use it?

It carries forward. If you give away $2 million during your lifetime, you have $11.99 million remaining in 2025. The unused exemption stays with you and reduces the amount your estate owes tax on after you die. However, the exemption amount itself drops in 2026 unless Congress extends it.