How to Gift Money to Family Members Tax Free

by Victoria Lee Blackstone ; Updated March 15, 2018
Federal law allows wide latitude for giving money to relatives.

Your gift of money to family members can surprise them on their birthdays or make their holidays brighter. In lean financial times, money can help your family members make ends meet. But are you required to report these gifts on your tax return, or are monetary gifts to family members tax-free?

Is My Gift of Money Taxable?

The Internal Revenue Service (IRS) does consider money a taxable gift, just as other types of gifts, including real estate, jewelry and stocks. In fact, the IRS defines a gift as a transfer to someone of any type of real or personal property, which is not reimbursed or compensated in-kind. Real property is considered immovable, such as land, easements and buildings; personal property is considered portable, such as cars, personal belongings and money. Gifting money to family members carries the same tax protocol as gifting money to unrelated people.

Can You Gift Money to Family Members Tax-Free?

Yes, but there are limits. These limits are divided into annual limits, called annual exclusions, and lifetime limits, called lifetime exclusions. Fortunately for most taxpayers, these limits are robust, and they offer a lot of latitude for extending monetary gifts that are exempt from taxes. And if you receive a monetary gift from someone, you don’t have to pay taxes on it because gifts are not classified as income, regardless of the gifted amount.

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Annual Limits for Tax-Free Money Gifts to Family

Each person can gift cash amounts up to $14,000 each year per person, to anyone, including family members, without having to report the cash gift on a tax return or paying gift taxes. Married couples can give a total up to $28,000 ($14,000 for each spouse) per person, to an unlimited number of people each year without incurring a tax liability. If you give more than $14,000 to any one person during the tax year, you’ll have to report any amount that's over the $14,000 on IRS Tax Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.” But you still won’t have to pay taxes on the gift if it falls within the lifetime limit of tax-free gifts.

Lifetime Limits for Tax-Free Money Gifts to Family

During your lifetime, you can gift up to $5.49 million tax-free to those who are the fortunate recipients of your generosity, family or otherwise. Married couples can give a total up to $10.98 million ($5.49 million each). And this amount is above the tax-free $14,000 you can give each person annually. The IRS includes all yearly cash gift amounts that exceed $14,000 per person toward your lifetime limit of $5.49 million, and it’s these overages that have to be reported with your tax return even though these cash disbursements are also tax-exempt. For example, if you gave your daughter $20,000 for her birthday last year, you do not have to report the first $14,000. For the remaining $6,000, you’ll report that amount as a gift when you file your tax return. But you still don’t have to pay a gift tax on the $6,000 unless it exceeds your lifetime limit of $5.49 million.

Unlimited Tax-Free Money Gifts to Family

The IRS allows some exceptions to the tax-free annual and lifetime limits on monetary gifts. Notable exceptions for which you can make unlimited tax-free gifts include:

  • Your spouse, if a U.S. citizen. If your spouse is not a U.S. citizen, you may gift up to $149,000 as long as $135,000 (above the $14,000 annual limit) qualifies for the gift tax marital deduction. The instructions for Form 709 describes these qualifications.
  • Payments that you make to cover someone’s medical expenses. You must pay the provider directly. Approved payments include medical treatments, medical transportation and medical insurance for someone else.
  • Tuition payments that you make directly to an educational institution for someone. Other educational costs are not included in tuition costs, such as room and board, books and school supplies, but you can pay for these costs with your annual tax-free gift limit.

A Caveat

Any money you gift must carry “present interest,” which means that the recipient has immediate access to the funds. This is opposed to a monetary gift that carries “future interest,” which means that the recipient must wait until a certain date before the funds are available. You cannot bind the hands of your recipients by placing any restrictions on when your gift money can be used.

What About the Money I Deposit Into a Joint Bank Account?

A qualifying joint bank account is one that you created, which includes another person who is authorized to withdraw funds, and from which you’re able to withdraw funds without the other person’s consent. When you deposit funds into the joint account, the money is not considered a gift until the other person makes a withdrawal. At the time of withdrawal, the money becomes a gift only in the amount that was withdrawn and only if the other person has no obligation to repay you.

Tax Form for Gifting Money to Family Members

Because taxpayers must file individual gift tax returns, spouses cannot file a joint gift tax return. Even if you do not owe gift taxes on the monetary gifts you made, you still have to file IRS Form 709 if you exceed the yearly limit of $14,000 per person. Report any amount that exceeds the per-person gift of $14,000 on Form 709 and submit it with your annual tax return. Form 709 is due by the filing deadline in the year after you gifted money. If you file an extension for submitting your annual tax return, Form 709 is automatically granted the same extension. You can use Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return,” or Form 2350, “Application for Extension of Time to File U.S. Income Tax Return.”

Are Monetary Gifts Allowed as Tax Deductions for the Giver?

You can deduct only monetary gifts that you make to IRS-qualified charities. Examples include churches, synagogues and other religious organizations; nonprofit schools and hospitals; and institutions such as the American Red Cross, The Salvation Army and Goodwill Industries. If a family member works for an IRS-qualified charity, donate directly to the charity so you can include the contribution in your itemized deductions when you file your tax return. IRS Publication 526, “Charitable Contributions,” lists qualifying organizations.

About the Author

Victoria Lee Blackstone is a horticulturist and a professional writer who has authored research-based scientific/technical papers, horticultural articles, and magazine and newspaper columns. After studying botany and microbiology at Clemson University, Blackstone was a University of Georgia Master Gardener Coordinator. She is also a former mortgage acquisition specialist for Freddie Mac in Atlanta, GA.

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