If you’ve given money or property to someone as a gift, you may owe federal gift tax, but in many cases, you will not. For example, there is usually no tax if you make a gift to your spouse or a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year.

In 2021, you can give any amount up to $15,000 per person per year with no gift tax liability. However, gifts exceeding that amount are counted against a gift tax exemption of $11,700,000 and are subject to the gift tax. At your death, these gifts could become your taxable estate (with credit for gift tax paid).

Education-related Gifts

Many grandparents and parents contribute to the cost of their child or grandchild attending college or boarding school. With tuition payments at most college and boarding schools due in July, they may be wondering whether the amount they are contributing to their grandchild’s education is taxable. Here are a couple of common scenarios:

Contributions to a qualified tuition plan. Contributions by a parent or grandparent to Section 529 programs are treated as completed gifts even though the account owner – typically the child or grandchild – has the right to withdraw them. As such, they qualify for the up-to-$15,000 annual gift tax exclusion in 2021 (same as 2020).

Direct payments of tuition to an educational institution. Tuition payments made directly to an educational organization are exempt from the gift tax even if the amount exceeds the $15,000 annual exclusion amount. No gift tax return needs to be filed.

Spousal Gifts

You and your spouse can make a gift up to $30,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting.

Gift Tax Returns

Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year, which in 2021 is $15,000. You do not have to file a gift tax return to report gifts to political organizations for its use, charities, and gifts made by directly paying someone’s medical expenses.

Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.

Federal Income Tax

Making a gift does not ordinarily affect your federal income tax, and you cannot deduct the value of gifts you make (other than deductible charitable contributions).

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com