The federal gift tax rate is 40%, but most people never pay it

The federal gift tax rate is a flat 40% on gifts that exceed your lifetime exemption. That exemption is $13.61 million per person in 2024 — a number that changes each year. Because the exemption is so high, fewer than 1 in 1,000 estates ever owe federal gift tax. The tax applies only to the amount over the exemption, not to the entire gift.

The rate itself does not change based on who you give to, how much you give, or how often you give. What changes is whether you owe tax at all. Most gifts — to family, friends, charities, or anyone else — fall under the exemption and trigger no tax bill.

Some states also tax gifts, but state rates and rules vary widely. A few states have their own gift tax with different rates and exemptions. Most states do not tax gifts at all. If you live in a state with a gift tax, that rate is separate from the federal rate.

Key Takeaways

  • The federal gift tax rate is 40%, but it only applies to gifts above your $13.61 million lifetime exemption in 2024.
  • The exemption amount changes each year based on inflation, so the threshold for owing tax shifts annually.
  • Gifts to spouses, charities, and medical or education expenses paid directly to providers are never taxed, regardless of amount.
  • State gift tax rates and exemptions vary by location; most states do not tax gifts at all.
  • You report gifts on Form 709 if you exceed the annual exclusion, but reporting does not mean you owe tax.

How the exemption shields most gifts from tax

Your lifetime exemption is a total amount you can give away during your life without owing federal gift tax. In 2024, that amount is $13.61 million. You can give $13.61 million to anyone, in any combination, and owe no federal tax. Once you exceed that total, the 40% rate applies to the overage.

The exemption is "lifetime," meaning it covers all gifts you make from now until you die. It is not an annual allowance that resets each year. If you give away $5 million today, you have $8.61 million left in your exemption. If you later give away another $10 million, you exceed the exemption by $1.39 million, and that overage is taxed at 40%.

The exemption amount changes each year. The IRS adjusts it for inflation, usually in November. In 2023 it was $12.92 million; in 2024 it is $13.61 million. If you are tracking large gifts, check the current year's exemption on the IRS website before you give.

The annual exclusion lets you give smaller amounts tax-free every year

Separate from the lifetime exemption, there is an annual exclusion. This is the amount you can give to any one person each year without using up your lifetime exemption or filing a tax form. In 2024, the annual exclusion is $18,000 per recipient.

You can give $18,000 to your child, $18,000 to your grandchild, $18,000 to a friend, and $18,000 to a charity — all in the same year — and none of it counts against your lifetime exemption. The next year, the exclusion resets, and you can give another $18,000 to each person.

If you give more than $18,000 to one person in a single year, you must file Form 709 (United States Gift Tax Return) with the IRS. Filing does not mean you owe tax; it means you are reporting the overage against your lifetime exemption. The 40% rate only kicks in once your total lifetime gifts exceed $13.61 million.

Gifts that are never taxed, no matter the amount

Some gifts are exempt from tax entirely, regardless of size or how much you have already given. Gifts to your spouse are never taxed if your spouse is a U.S. citizen. You can give your spouse $1 million, $10 million, or any amount, and it does not count toward your exemption or trigger tax.

Gifts to registered charities are also never taxed. If you donate to a may have access to charity, that amount does not use your exemption. Gifts that pay someone's medical bills or tuition are exempt if you pay the provider directly — not if you give money to the person and they pay. For example, if you pay the hospital $50,000 for your grandchild's surgery, it is not taxed. If you give your grandchild $50,000 and they pay the hospital, it counts as a gift.

Gifts to political organizations and certain transfers between spouses also fall outside the tax system. The IRS publishes a full list of exempt gifts in Publication 559.

State gift tax rates vary or do not exist

Only a handful of states tax gifts. Iowa, Kentucky, Maryland, New Jersey, and Pennsylvania have inheritance or estate taxes that can affect what heirs receive, but they do not tax the giver. Delaware, Hawaii, Illinois, Maine, New York, Oregon, Rhode Island, Tennessee, Vermont, and Washington have estate taxes but not gift taxes.

Connecticut, Delaware, Hawaii, Illinois, Maine, New York, Oregon, Rhode Island, Tennessee, Vermont, and Washington tax estates but not gifts during life. If you live in one of these states, you may owe state tax on your estate after you die, but gifts you make while alive are not taxed by the state.

If you live in a state with a gift tax, that state's rate and exemption are separate from the federal numbers. For example, some states have lower exemptions, meaning you owe state tax on gifts that would not trigger federal tax. Check your state's tax authority website for current rates and rules.

How the 40% rate applies once you exceed your exemption

If your lifetime gifts exceed $13.61 million, the 40% federal tax applies only to the amount over the limit. For example, if you give away $14 million total, you owe 40% on $390,000 — the amount above the exemption. That is a tax bill of $156,000.

You calculate this on Form 709 when you file your federal income tax return. The IRS uses the form to track your lifetime gifts and determine whether you have crossed the threshold. If you have, you owe the tax in the year you file the form.

The 40% rate has been in place since 2013 and applies equally to all gifts over the exemption. It does not matter whether you give to family, friends, or strangers — the rate is the same.

The exemption may change after 2025

The current exemption of $13.61 million is set to expire on December 31, 2025. After that date, the exemption is scheduled to drop to roughly $7 million per person (adjusted for inflation), unless Congress changes the law. This means gifts above $7 million would be taxed at 40% starting in 2026.

This is not certain — Congress can and has changed gift tax law in the past. If you are planning large gifts and the exemption matters to your decision, monitor tax news or speak with a tax professional who can track legislative changes.

Frequently Asked Questions

Do I owe gift tax if I give money to my adult child?

Not unless you give more than $18,000 in a single year. Gifts under $18,000 per person per year are tax-free. If you give $25,000, you file Form 709 to report the $7,000 overage, but you owe no tax because it counts against your $13.61 million lifetime exemption.

What if I give the same person money in multiple years?

Each year resets the $18,000 annual exclusion. You can give $18,000 to the same person every year without tax or filing. If you give $25,000 one year and $18,000 the next, only the first year requires Form 709.

Does my spouse's exemption add to mine?

Yes. Each person has their own $13.61 million exemption. A married couple can give away $27.22 million combined before owing federal gift tax. Married couples can also use "gift splitting" on Form 709 to treat gifts as if both spouses made them, which can help manage the annual exclusion.

If I pay my grandchild's college tuition, is that a taxable gift?

No, if you pay the school directly. Tuition paid straight to the educational institution is never taxed. If you give your grandchild money and they pay tuition, it counts as a gift and may use your annual exclusion.

What happens if I give away more than my exemption?

You owe 40% federal tax on the amount over $13.61 million. For example, a $15 million gift means $1.39 million is taxed at 40%, resulting in a $556,000 tax bill. You report this on Form 709 and pay the tax when you file.