The gifting of money: US tax implications

What is a Gift Tax?

If you plan to gift money to someone other than your spouse or dependent, at home or abroad, be aware that you may be required to pay gift tax. This federal tax starts at 18% and can reach up to 40% on certain gift amounts, but only if you exceed the lifetime gift tax exclusion* (more on that later). Gifts eligible to be taxed include:

• Cash

• Property

• Vehicles

• Securities (such as stocks and bonds)

• Art.

Gifts entirely free of tax, include:

• School tuition and education payments

• Charitable donations

• Medical expenses

• Political contributions

• Gifts to spouses and dependents

As the person giving the gift, it’s your responsibility to pay the tax, not your recipient’s. However, while they don’t face any immediate tax consequences, they may have to pay capital gains tax if they sell gifted property in the future.

What are the rules on gifting money to family and friends?

If you send the gift of money to family or a friend abroad, it will be treated in the same way as if you sent the gift in the US.

The rules on gifting money are centred on two key amounts: the annual exclusion limit and the lifetime exemption limit. These are inextricably linked and here’s how they work:

The annual exclusion limit

In 2023, the annual exclusion limit (the amount you can gift one person in a year) is up to $17,000. This is the amount you can gift without having to report it to the Internal Revenue Service (IRS).

• Give away more than $17,000 in cash or assets to any one person during the tax year and you must file a gift tax return, in addition to your federal tax return the following year. That doesn’t mean you have to pay a gift tax; it just means you need to submit IRS Form 709 to disclose the gift.

• The annual exclusion of $17,000 is per recipient. So, you can give $17,000 to your cousin, another $17,000 to your aunt, another $17,000 to a neighbour, and so on in 2023, without having to file a gift tax return in 2024.

• You can gift your spouse as much as you want without triggering a gift tax return. Although special rules may apply if your spouse isn't a U.S. citizen

• Gifts to qualified nonprofits are considered charitable donations, not gifts,  and may be tax deductible.

• The person you’re sending money to usually doesn't need to report the gift.

The lifetime gift tax exemption

On top of the $17,000 annual exclusion, you get a $12.92 million lifetime gift tax exemption Here’s how it works:

• Say you give your sister $50,000 in 2023, you’ll use up your $17,000 annual exclusion and need to file a gift tax return. But the good news is that you probably won’t pay a gift tax. Why? Because the extra $33,000 ($50,000 - $17,000) will count against your lifetime exemption.

• Next year, if you’re equally generous and give your brother another $50,000, the same thing happens: you use up your annual exclusion and use another portion of your lifetime exemption.

Gifting money taxes : in summary

You can give up to $17,000 to an individual recipient in one year. There’s no limit to the number of recipients you can give a gift to. There’s also a lifetime exemption of $12.92 million. So, even if you give someone more than $17,000 in one year, you won’t have to pay any gift taxes unless you go over that lifetime gift tax limit.

You will still need to report gifts over the annual exclusion to the IRS via Form 709. The IRS will lower your remaining lifetime exemption over time, and then use that amount to determine how much of your estate you need to pay estate tax on.

How much money can you gift to family members tax free?

You can give unlimited gifts of money to these family members without facing a gift tax, or having to file gift tax paperwork:

• A spouse who’s a US citizen

• A dependent

You can gift any member of your family (or anyone else) up to $17,000 without having to report it to the Internal Revenue Service (IRS).

Receiving money from abroad: how to stay tax compliant

Any gift you receive from abroad will not be subject to income tax, unless it produces income. However, if the gift exceeds $100,000, you’ll need to fill out an IRS Form 3520. Gifts from a business or a partnership that exceed $15,797 also require that you file form 3520. There’s no tax to pay on this amount. But, if you don’t file this information, you could be fined up to $10,000.

It’s also worth noting that, by law, banks report all cash transactions that exceed $10,000 (the international money transfer reporting limit set by the IRS). Banks may also report any transaction, of any amount, that looks suspicious. Some money transfer businesses have reporting thresholds as low as $1,000.

Gifting money abroad made easy with WorldRemit

So, if you’re sending money abroad from the US, it’s highly unlikely that you’ll pay tax unless you exceed the $12.92 million lifetime gift tax exemption. You will, however, always have to file a gift tax return on gifts to any one person exceeding $17,000.  But to be absolutely sure on the tax implications of gifting money to family members, it’s always worth consulting a tax professional.

And, if you’re sending money abroad, we’re always here to support you with our fast, low-cost and secure online money transfer service. You can send in a number of ways, via our website, or on our app.

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Sending money abroad and Gift Tax: FAQs

How much money can I receive as a gift without being taxed in the US?

Any gift received from abroad won’t be subject to income tax, unless it produces income.

Do you have to report gifted money to the IRS?

Gift more than $17,000 in cash or assets to any one person during the tax year, and you must file a gift tax return (in addition to your federal tax return the following year).

How much money can I send overseas as a gift?

There isn’t a law that limits the amount of money you can send. However, financial institutions and money transfer providers often have daily transaction limits.

The contents of this blog post does not constitute legal or financial advice and is provided for general information purposes only. If you require specific legal and / or financial advice you should contact a specialist lawyer or financial advisor. Information true at time of publishing.