US Gift Tax Explained: Is Gift Money Taxable In 2021?

“It’s better to give than to receive,” says the old adage. But many people aren’t aware that there could be tax ramifications to giving away money or assets to others.

What is Gift Tax?

A US federal tax called the gift tax is 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. The good news is that this threshold is so high that few people end up actually having to pay the gift tax.

If you’re interested in overall reducing your taxable income, here’s an article with an overview of financial gifts, plus 11 more kinds of nontaxable income.

What is the Annual Gift Tax Exclusion?

In 2021, you only have to file a gift tax return and possibly pay the gift tax if you give away cash or property that’s valued at more than $15,000 per year. If you’re married and you and your spouse file a joint income tax return, together you can give away up to $30,000 per year gift-tax free. These amounts are known as the annual gift tax exclusion.

Note that this annual exclusion is per gift recipient. So you could give away $15,000 to several different people in a single year and still not have to file a gift tax return and possibly pay the gift tax. Also, you and your spouse can generally give as much as you like to each other without triggering any gift tax ramifications.

For more on starting small and working your way up to large financial gifts, check out Charitable Giving: How This Family Laddered Up to Their Own Version of 10%, an article by financial podcaster Andy Hill.

What About the Lifetime Gift Tax Exclusion?

The lifetime gift tax exclusion is an additional exclusion amount that’s added to the annual gift tax exclusion. So if you give away more than $15,000 in one year to a single person, the lifetime gift tax exclusion will kick in. 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.

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Looking to improve your overall tax management? Get down to the nitty gritty with our guide 5 Tax ...

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