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What are the Tax Implications of Gift Income?
In the United States tax system, gift income refers to property being transferred to a person by another person in exchange for nothing. Gift income is handled by a gift tax, and is governed by Chapter 12, Subtitle B of the Internal Revenue Code. The gift tax has largely been rolled in with the estate tax, to allow people to minimize the amount of estate tax they pay after they die by giving a great deal while they are alive. Still, there remain key differences between the two, and so they are generally treated as quite separate.
The burden of the gift tax is carried by the giver of the gift, not by the recipient, and the recipient generally does not have to pay anything. There are some exclusions, however, to allow people to give without paying taxes on a fair amount of worth each year. For example, there is a basic exemption, under which an individual can, as of 2009, freely give up to $13,000 US Dollars (USD); similarly, a couple could give up to $26,000 USD without having to pay taxes on it. Other gifts that are exempt from this tax include gifts one gives to one’s legal spouse, gifts given to charity organizations, or gifts in the form of payment for medical or educational services for a person.
Generally speaking, the recipient of a gift is excluded from paying taxes on that gift. The IRS allows most gift income to remain as untaxable income, although there are some notable exceptions. Gift income which comes from an employer to an employee, for example, is still considered taxable income, and must be claimed. This similarly goes for gifts given on the behalf of an employer to an employee, or gifts given from an employer to someone on behalf of the employee. There are a few special cases in which this gift income may remain exempt from taxation, but they are rare.
Gifts received which in turn generate their own income are not received as gifts, but subsequent income is taxed. For example, if you were to gift a person a hot dog stand, you would pay taxes on the gift you gave them, but they would pay no taxes on the worth of the hot dog stand itself. Any revenue brought in by the stand, however, would not be considered gift income, but simply traditional revenue, and so would be taxed accordingly. This is to avoid a situation where income could remain entirely untaxed on both sides of the equation.
One of the main ways in which the gift income exemption is used is for large estates to minimize their ultimate liability under the estate tax. While a person is still alive, they can give up to the maximum annual exclusion away each year to the people, such as their children, who will ultimately be the recipients of their estate. In this way worth is drained from the estate and to the heirs, without being taxed, so that when the giver dies their estate will have less worth to fall under the estate tax.
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![The Internal Revenue Service collects federal income tax in the US.]()
The Internal Revenue Service collects federal income tax in the US.
Discussion Comments
The annual exclusion from gift taxes 2013-2014 is $14,000.
@anon323328 /Post9: Money paid directly to an educational institution or a medical service provider on behalf of another is not counted against the annual untaxed gift amount. But if you give someone cash, even for those purposes, it counts toward the annual gift exclusion limit.
@anon940609/Post 13: I would assume that once your mother claims the insurance and it is counted as her personal income/resource, that she could spend it as she pleases. Over the course of a year, your mother could gift you up to $14,000 and your wife the remaining $6,000. Or $10,000 per person without any of you paying taxes on it.
@chrisvar5/Post 6: You should look into the benefits and implications of claiming the $1,000 per/mo as room and board. Or your mother might be able to claim it has her contribution to the household. If she is claiming it as a gift then each year she can gift an individual $14,000 without penalty ($13,000 from the years 2009-2012).
All gifts (tax-exempt and exclusion amount) still have to be filed by donor.
My boss gave me a bonus check of $5,000 at Christmas. I decided to hold on to the check and not cash it so that it would not be taxable for this year. What will be the implication?
My mother wants to gift me and my wife 20K from my father's death insurance. How should this be done as to not raise red flags?
My friends' ex-husband is trying to avoid child support by lying about his income and pretending to not make any money and making his income look like it is all his wife's money. He is saying the mother and father of the wife gave 60,000 dollars to the couple to buy the house because it was a sink hole house and you have to pay cash, which I am sure they had plenty of.
I don't think the wife's parents know that they said under oath that the house was a gift, nor did they pay gift taxes or probably know they should have. The business is a roofing business, in Florida. He is totally cooking the books to stay poor and doing under the table work roofing. What a scum bag.
How many dollars can I receive internationally as a gift?
How much can a person receive through monetary gifts before taxes need to be taken out?
What about if the monetary gifts are used by the person to pay for schooling? Like, receiving $500 a month from people in monetary gifts to be used for monthly schooling costs.
My widowed father gave his live-in girlfriend $1000/month for "groceries," and occasionally gave her larger sums, such as $9000 here and there. He died in January, 2013, and I am trying to do his taxes. The girlfriend, of course, is assuming no responsibility for his taxes, burial costs, etc. This was the arrangement for over 10 years. Do I have any recourse? If she files these payments as "gifts," will his estate (me) have to pay the taxes on these gifts?
My mother gives us $1,000 per month for household, utilities, and mortgage. She lives with us, so would this be considered a gift and would it be taxable?
If my father is willing to give $100,000 to my husband and me for a down payment on a house, what are the tax implications for both sides?
Oasis11- Do I have to pay income tax on a gift? Those seemed like prizes so I am sure the IRS has these items classified differently.
I know that there is a limit on cash gifts, but I wondered if it would apply to merchandise too.
I know that a charitable gift annuity works a little different. There the initial contribution becomes an asset to the charity but the charity agrees to pay out a fixed amount for one or two people for the lifetime of the beneficiaries of the annuity.
Upon the death of the beneficiaries the annuity becomes property of the charity. It is like life income gifts when you offer a gift annuity to someone. The nice thing is that you are also helping a charity at the same time.
Sometimes when people win prizes on a television show they do have to pay income tax on the gift money.
I remember a while back on one of the Oprah’s favorite things show that she offered cars for each of the audience members but in receiving this gift they were also required to report it as gifting income and pay taxes.
There was also a case on HGTV program that offered a dream house that was valued at $2,000,000. The winners had to sell the house in order to pay the taxes, so in this case you do have to pay taxes on a gift.
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