What are the Tax Implications of Gift Income?
- Written By: Brendan McGuigan
- Edited By: Bronwyn Harris
- Last Modified Date: 05 May 2013
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Copyright Protected:
2003-2013 Conjecture Corporation
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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Discuss this Article
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anon333086
Post 10 |
How many dollars can I receive internationally as a gift? |
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anon323328
Post 9 |
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. |
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elayne3
Post 8 |
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? |
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chrisvar5
Post 6 |
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? |
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anon169499
Post 3 |
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? |
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Bhutan
Post 2 |
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.
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oasis11
Post 1 |
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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