2022 Gift Tax Rates
Did you know that you may be responsible for taxes on monetary gifts to others? While it pays to be generous, it’s important to understand the federal gift tax and avoid triggering it if possible.
What is the annual gift tax?
The annual gift tax is a transfer tax imposed on large monetary gifts to others. The purpose of the tax is to prevent large transfers of wealth without taxation. In 2022, the IRS allows gifts up to $16,000 without tax and reporting implications. Fortunately, this amount is high enough to prevent most individuals from triggering the gift tax.
Here’s how it typically works:
- An individual can give up to $16,000 in cash or assets (e.g., stocks, bonds, mutual funds, land, a new boat, etc.) in a single year to any one person. If you make a gift in excess of $16,000, you’ll need to file a gift tax return to report the gift, which doesn’t necessarily trigger the gift tax.
- The $16,000 is per recipient, so you can actually give more than $16,000 per year without triggering the gift tax. For example, you can give $16,000 to each of your three children without paying taxes.
- If you’re married, you can give up to $32,000 per year per recipient without triggering the gift tax.
- Gifts to charitable organizations are considered charitable donations and are therefore excluded from the gift tax limit.
- Other types of gifts that are excluded from gift tax include:
- Direct gifts to pay for medical or educational expenses
- Gifts to a spouse (there may be limits if the spouse is not a U.S. citizen)
- Direct gifts to a political organization
What is the lifetime gift tax exclusion?
In addition to the annual $16,000 gift tax exclusion, American taxpayers may exclude up to $12.06 million in gifts over a lifetime ($24.12 million for married couples filing jointly). You may use all of your lifetime gift tax exclusion during your lifetime or save it to be used by your estate to help reduce or eliminate estate taxes following your death.
However, note that the lifetime gift tax exclusion is set to decrease by 50% for 2026. So, while your net worth may be under the $12.06 million exclusion now, the reduction in 2026 may increase the likelihood your gift giving or estate is subject to tax.
Who pays gift taxes?
Gift tax is the responsibility of the gift giver, not the recipient. If the giver has passed away, taxes are paid by his or her estate.
Do you have questions about the annual gift tax exclusion? Creative Planning is here for you. Our teams have experience navigating a wide range of tax and financial challenges, always with the goal of helping clients achieve their long-term goals. For help with your gifting strategy, or with any other financial matter, please schedule a call.
