You usually do not pay tax on money you receive as a gift

The person who gives the gift may have to file a gift tax return with the IRS, but the person who receives it does not report it as income on their tax return. This is the rule for most gifts: cash, checks, or money transfers from family, friends, or anyone else are not taxable to you.

The IRS does not tax gifts as income to the recipient. You will not owe federal income tax on a gift, no matter how large it is. However, there are specific situations where gift money can create a tax problem for you, and those depend on what you do with the money after you receive it.

Key Takeaways

  • You do not report gift money as income on your federal tax return, regardless of the amount.
  • The person giving the gift may have to file a gift tax return with the IRS if the gift exceeds the annual exclusion amount, but this does not affect your taxes.
  • If gift money earns interest, dividends, or capital gains after you receive it, that income is taxable to you.
  • Loans disguised as gifts, or gifts with strings attached, may be treated as taxable transactions by the IRS.
  • Gifts used to pay someone else's tax liability or tuition can trigger separate tax consequences depending on the circumstances.

When the giver has to file a gift tax return

The giver files a gift tax return (Form 709) if they give more than the annual exclusion amount to one person in a single year. For 2024, that limit is $18,000 per person. If your parent gives you $25,000 in one calendar year, they file Form 709 to report the excess $7,000 to the IRS.

Filing Form 709 does not mean the giver owes tax. It means they are using part of their lifetime gift and estate tax exemption, which is much larger. Most people never owe gift tax because the lifetime exemption is over $13 million (this amount changes yearly). The giver's filing does not create a tax bill for you.

If you receive multiple gifts from the same person in one year, the giver adds them together to see if they cross the annual limit. A $10,000 gift in March and a $9,000 gift in September from the same person total $19,000, which means the giver files Form 709.

Income earned on gift money after you receive it

Once the gift is yours, any money it earns becomes your taxable income. If your grandmother gives you $50,000 and you deposit it in a savings account, the interest you earn on that $50,000 is taxable to you. You report that interest on your tax return in the year you earn it.

The same rule applies to dividends, capital gains, or rental income from property received as a gift. The original gift itself is not taxable, but the earnings on it are. If you receive stock as a gift and it pays dividends, you report those dividends as income. If you sell the stock later at a profit, you report the capital gain.

Keep records of the gift's value on the day you received it. This becomes your cost basis for calculating gains or losses if you sell it later. If your uncle gives you stock worth $5,000 on January 15, and you sell it for $6,500 on March 1, your taxable gain is $1,500.

Gifts that look like loans or have conditions attached

The IRS can treat a gift as a loan if the giver expects repayment, even if nothing is written down. If your brother gives you $30,000 but you both understand you will pay him back, the IRS may view this as a loan, not a gift. You would not owe income tax on it, but the giver might owe tax on interest if no interest was charged (this is called imputed interest).

A gift with strings attached — for example, money given only if you use it for a specific purpose — is still a gift for tax purposes. Your parent can give you $20,000 "for your wedding" and it remains a non-taxable gift even if you use it for something else. The condition does not change the tax treatment to you.

However, if the gift is actually payment for work or services, it becomes taxable income. If your parent gives you $5,000 as a "gift" but you painted their house and that was the real reason for the payment, the IRS treats it as wages. You would report it as income.

Gifts used to pay tuition or medical bills

Money given directly to a school to pay tuition is not subject to gift tax, even if it exceeds the annual exclusion. This is called the tuition exclusion. Your parent can pay $50,000 to your child's college and it does not count against their annual gift limit, as long as the payment goes straight to the school.

The same rule applies to medical expenses paid directly to a provider. Your parent can pay $100,000 directly to a hospital for your surgery and it does not trigger gift tax. However, if your parent gives you the money and you pay the school or hospital, it counts as a regular gift and may exceed the annual limit.

You do not report these payments as income. The tuition and medical exclusions are separate from the annual gift exclusion, and they do not create taxable income for you.

Gifts from your employer or a business

Gifts from your employer are usually taxable income to you, even though they are called gifts. If your boss gives you a $500 bonus or a gift card, you report it as wages on your tax return. The only exception is if the gift is a small item of minimal value (the IRS considers this under $25 per year from one employer).

Gifts from clients or customers in a business relationship are also taxable to you if you receive them in connection with your work. If you are a real estate agent and a client gives you $1,000 after closing, it is taxable income. If a friend gives you $1,000 with no business connection, it is not.

State gift tax and inheritance tax

A few states have their own gift tax or inheritance tax. Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania tax gifts or inheritances in some situations. If you live in one of these states, you may owe state tax on a large gift even though you owe no federal tax.

State rules vary widely. Some states tax only inheritances (money received after someone dies), not gifts during life. Others tax gifts above a certain amount. Check your state's tax agency website or speak with a tax preparer in your state to learn the rules where you live.

Federal gift tax does not explore to most people, but state rules are different. A gift that is not taxable federally may be taxable in your state.

Frequently Asked Questions

Do I have to report a gift on my tax return?

No. You do not report the gift itself as income on your federal tax return. The giver may file Form 709 with the IRS, but that does not require you to do anything on your return. You only report income that the gift earns after you receive it, such as interest or dividends.

What if someone gives me more than $18,000 in one year?

You still do not owe tax on it. The giver files Form 709 to report the excess to the IRS. This uses part of their lifetime exemption but does not create a tax bill for them or for you. You report no income from the gift.

Can the IRS take back a gift I received?

No. Once you receive a gift, it is yours. The IRS cannot reclaim it. If the giver did not file Form 709 when they should have, that is the giver's problem, not yours. You have no tax obligation related to the giver's filing.

If my parent pays my credit card bill as a gift, do I owe tax?

No. Money your parent gives you to pay a bill is still a gift. You do not report it as income. However, if your parent pays the bill directly to the credit card company on your behalf, the same rule applies — it is a gift and not taxable to you.

What happens if I receive a large gift and then sell it?

The gift itself is not taxable. However, if you sell it for more than it was worth when you received it, you owe tax on the gain. If your aunt gives you jewelry worth $2,000 and you sell it for $3,000, you report a $1,000 capital gain on your tax return.