Key takeaways

• The federal gift tax applies when giving cash or property above annual or lifetime exclusion thresholds, but most people may not owe it.
• In 2026, the annual gift tax exclusion is $19,000 per recipient, and the lifetime exclusion is $15 million per person.
• Direct payments for qualified medical or education expenses made directly to the provider or institution are exempt and do not count toward gift tax limits.

Gift tax is a federal tax assessed on transfers of cash or property valued above a certain threshold, paid by the giver of the gift rather than the recipient.

​​“It’s better to give than to receive” — so goes the old adage. But many people aren’t aware that there may be tax ramifications to giving away money or assets to others.

What is gift tax?

The gift tax is a federal tax assessed on transfers of cash or property valued above a certain threshold. Gift tax is paid by the giver of money or assets, not the receiver. This threshold is so high that few people end up having to pay the gift tax.

These thresholds are referred to as exclusions. There are two separate gift tax exclusions: an annual exclusion and a lifetime exclusion.

As the name implies, the annual gift tax exclusion is the amount of money you can give away each year before the gift tax applies.¹ If you give away cash or property that’s valued at more than the annual limit, you may be required to file a gift tax return and possibly pay the gift tax. If you’re married, and you and your spouse file a joint income tax return, together you can give away up to double the individual limit per year.

The gift tax exclusion is $19,000 in 2025 and 2026.² This annual exclusion is per gift recipient. You could give away the limit to several different people in a single year and still not have to file a gift tax return or pay the gift tax. Spouses can generally give as much as they want to the other without triggering gift taxes.³

Lifetime gift tax exclusion

The lifetime gift tax exclusion is the amount of money you can give away during your lifetime before the gift tax applies.⁴ It is an additional exclusion amount that’s added to the annual gift tax exclusion. If you give away more than the annual limit in one year to a single person, the lifetime gift tax exclusion will absorb the excess. Think of these like buckets: If you fill up your annual gift tax exclusion bucket, the excess gift amounts will spill over into your lifetime gift tax exclusion bucket.

In 2026, the lifetime gift tax exemption is $15 million per person, up from $13.99 million in 2025.⁵ For example, if you give $60,000 to a single person in 2026, the $41,000 that’s above your annual exclusion amount would count toward your lifetime exclusion. You may have to give away a significant amount of cash and property before you end up having to pay gift tax. However, you must file a gift tax return if you give away more than your annual gift tax exclusion in any one year.⁶ This return is used to help you and the IRS keep track of your lifetime gift tax exclusion.

2025 and 2026 gift tax rates

If your gifts exceed these exclusion amounts, you may be required to file a gift tax return and may owe gift tax. For 2025 and 2026, the federal gift tax (which is part of the unified estate and gift tax system) uses a graduated rate schedule that can reach a top rate of 40% on taxable gifts after applying your annual and lifetime exclusions.⁷

The gift tax return is due by April 15 of the year after the gift was given, with extensions available if a federal income-tax extension is filed.⁸

How can you avoid gift tax?

To avoid having to file a gift tax return and possibly pay the gift tax, limit each recipient’s annual gift to no more than the exclusion amount and use direct payments for qualified education or medical expenses whenever possible. For example, suppose you want to help pay for your grandkids’ college expenses so you contribute $20,000 to each of their 529 college savings plans. You would need to file a gift tax return reporting these gifts.

Paying for a child’s wedding or honeymoon counts as a gift for tax purposes.⁹ If you spend more than the annual exclusion amount ($19,000 in 2025 and 2026), you’ll have to file a gift tax return. Spreading out gifts or paying qualified medical or educational expenses directly, rather than giving money to the recipient, is another way to potentially avoid paying gift tax.

Gift tax FAQs

Q: What is the gift tax?

A: The gift tax is a federal tax assessed on transfers of cash or property valued above a certain threshold, which is referred to as an exclusion.

Q: Who pays the gift tax?

A: The gift tax is paid by person giving the gift, not the recipient.

Q: What is the gift tax rate?

A: The federal gift and estate tax uses a unified rate structure with a maximum 40% rate on taxable gifts that exceed the exemption.

Q: How can I avoid the gift tax?

A: The most effective way to avoid paying the gift tax is to keep your annual and lifetime gifts below the exclusion amounts. The details of gift tax planning can be complex, so consider consulting with a tax professional for advice and guidance in your specific situation.