Do cash gifts count as income?
The IRS defines a gift as money or items of value given to another person without expecting anything of equal value in return. For federal tax purposes, a gift is not considered income to the recipient.
Individuals who receive gifts of money or property do not need to report those gifts on their federal tax returns. However, individuals who give large gifts may need to report them to the IRS if the total amount given to one person exceeds the annual gift tax exclusion for that year.
The person providing the gift might owe tax on the gift and may not deduct its value on their federal income tax return.
In general, the following types of gifts are not considered taxable by the IRS:
- Gifts that, in total, do not exceed the annual exclusion amount.
- Gifts made to a spouse.
- Direct payments made to medical or educational institutions on someone else’s behalf.
- Gifts made to political organizations for their use.
What is the largest gift I can give to friends and family tax-free?
When determining whether a gift is taxable, the IRS considers two limits: (1) the annual exclusion and (2) the lifetime gift tax exclusion.
A gift can be money, property, or any item of value.
Annual Exclusion
The annual exclusion allows you to give up to $19,000 to any one individual per year without needing to file a gift tax return. If you are married, you and your spouse may each give up to $19,000 to the same individual—effectively allowing $38,000 in total tax-free giving to one person.
You may give gifts up to the exclusion limit to as many people as you like each year. The IRS adjusts the annual exclusion periodically to account for inflation.
If you give any individual more than the annual exclusion amount, you must file IRS Form 709.
Lifetime Limit
Even if you give more than the annual exclusion amount in a single year, that does not necessarily mean you owe gift tax. The IRS allows a much larger lifetime gift and estate tax exclusion—the total amount you can give away over your lifetime before paying gift taxes.
Currently, the lifetime exclusion is $13.99 million per individual (or $27.98 million for married couples).
Beginning in 2026, the One Big Beautiful Bill Act (OBBBA) will raise the lifetime exclusion to $15 million per individual (or $30 million for married couples), with annual inflation adjustments starting in 2027.
Example: If you gave your child $250,000, the first $19,000 (or $38,000 if you are married and gift jointly) would be covered by the annual exclusion. The remaining $231,000 (or $212,000 if married) would reduce your lifetime exclusion by that amount.
Once your total lifetime gifts exceed the exclusion limit, the excess amount is subject to gift tax rates ranging from 18% to 40%.
Because gift tax rules can vary based on your overall financial situation, it’s best to consult a tax professional if you plan to give large gifts or need guidance on long-term estate or tax planning.
When considering whether your gift will be tax-free, you must consider its taxability in two parts: the annual exclusion and the lifetime gift-tax limits. Remember that a gift can be money or items of value.
How does the IRS know if I've given a large gift?
The IRS requires you to file Form 709 if you give a gift to any individual that exceeds the annual exclusion amount during the tax year.
Form 709 is not required for gifts that stay within the annual exclusion limit or for those specifically excluded (such as gifts to spouses or direct payments to medical or educational institutions).
What are some ways I can give generously to friends and family without gift tax consequences?
Gift taxes don’t have to limit your ability to give to loved ones. With some planning, you can maximize your generosity while minimizing tax exposure.
Utilize the annual exclusion
Each year, you can give up to the annual exclusion amount ($19,000) to as many individuals as you like, tax-free. If you are married, your spouse can do the same, effectively doubling your giving power.
Pay medical or educational expenses directly
If you want to help a loved one with medical bills or tuition, pay the institution directly.
The IRS does not consider these direct payments to be gifts for tax purposes—meaning they do not count toward your annual or lifetime exclusion limits.
Combine planning with your spouse
Married couples can combine their exclusions to make larger tax-free gifts. This strategy, known as gift splitting, requires both spouses to agree and may still require Form 709 to document the election.
If you have questions about gift tax laws or how to structure gifts to minimize taxes, talk to a Legal Pro for affordable legal help. You can also visit the IRS Gift Tax page for official guidance.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
