When Does a Gift Require a Gift Tax Return, and Gift Tax?

With lifetime gift and estate tax exemptions at an all-time high in 2023, not as many taxpayers will be subject to federal gift taxes this year. However, that does not mean you will not have to file a gift tax return.

Nontaxable Gifts

There are a few scenarios that do not involve paying gift tax, but you may still be required to file a Form 709—United States Gift (and Generation-Skipping Transfer) Tax Return—even if your gift falls into the non-taxable threshold. Always consult your tax professional to be certain there is no filing requirement.


The following is a list of scenarios that are considered non-taxable gifts.

  1. For 2023, the annual gift tax exclusion amount is $17,000 per donee, per taxpayer. This means you can give multiple people a gift of $17,000 without having to pay gift tax or file a gift tax return. If you are married, the annual exclusion is $34,000 per donee. So, if you have three children, you and your spouse could gift $102,000 tax free this year.
  2. Gifts for certain medical expenses can be paid directly to the medical institution in any amount without affecting the annual gift tax exclusion.
  3. Gifts for school tuition paid directly to the institution provide parents, grandparents, and other donors the option to pay unlimited amounts for a person’s tuition and not be taxed. Room, board, books, and supplies are not calculated into this exclusion amount.
  4. Gifts to your spouse, if they are a U.S. citizen, can be in any amount (certain restrictions apply to gifts to trusts). If they are not a citizen, the annual exclusion amount is $175,000 for 2023.
  5. Gifts to a political organization or a charitable 501(c)3.

Charitable donations can also be deducted from your taxable income in addition to not being subject to gift tax. Individuals may deduct qualified charitable contributions (including donor-advised funds) of up to 50 percent of their adjusted gross income (AGI) in 2023 and up to 60 percent of AGI for cash gifts. The deduction limit decreases to 30 percent of AGI for appreciated non-cash assets held for more than one year.

It is important to note that typically a gift tax is paid by the donor of the gift, not the beneficiary. In addition, non-cash gifts made during the donor’s lifetime generally maintain the basis of the donor, unlike inheritance from an estate, which has received a step-up in basis and would be the fair market value as of the date of death.

Lifetime Gift and Estate Exemption

Every taxpayer is allowed an annual gift exemption. Gifts that exceed this annual exemption amount are considered taxable gifts that require filing Form 709. These taxable gifts reduce your lifetime exemption amount, which is currently $12.92 million, and you will not pay gift tax until your total lifetime gifts are in excess of this exemption amount. This lifetime exemption amount is unified with the estate tax, so it is also the exclusion allowed for your estate. Therefore, gifts that reduce your lifetime exemption also reduce the exemption amount available for your estate.

While the annual gift tax exclusion caps at $17,000 this year, many choose to gift over that amount because the lifetime exemption amount is currently much higher at $12.92 million per taxpayer ($25.84 million for married couples) in 2023. That means if you’d like to gift your child $50,000 this year, you can choose to apply the $33,000 of your lifetime exemption. You will not be subject to gift tax, but you will still need to file Form 709 to keep track of your running lifetime exemption amount.

Both the tax rate on the cumulative lifetime gifts in excess of the exemption amount and the tax rate on an estate of a taxpayer who passes away this year with an estate valued in excess of the exemption amount is 40 percent. However, it is important to note that the $10 million (plus CPI, so $12.92 million in 2023) lifetime exemption amount, which was part of the 2017 TCJA changes, will sunset on the last day of 2025. The lifetime exemption amount will revert back to $5 million (plus CPI, so likely around $6 million in 2026) per person. The IRS has assured that there will be no “claw-back” of gifts made during this window that will later exceed the future, lower lifetime exemption amount. This means that the higher lifetime exemption amounts are “use it or lose it” before the end of 2025.

Making more gifts during your lifetime can reduce your estate tax and could provide you and your heirs with valuable tax savings by implementing the right estate plan.

Next Steps

Our estate planning department is well-versed in strategic planning for gift, estate, and generation-skipping transfer tax. If you would like to implement a plan for your family, please contact an advisor at R&A. We’re happy to help.

Join our newsletter for insights and information that matter to you or your business

About this Author

Dave specializes in tax research, estates and trusts, complex partnerships, and corporate, not-for-profit, and private foundation tax compliance.