gift tax

Gift tax is a federal tax on the transfer of money or property from one person to another without receiving equal value in return. The tax applies when the value of a gift exceeds the annual exclusion amount. For 2025, the annual exclusion is $19,000 per recipient. An individual may give up to this amount to as many people as desired in one year without incurring gift tax or using their lifetime exemption. Certain transfers are exempt regardless of amount, including gifts to a spouse, gifts to tax-exempt charities, and payments made directly for another person’s tuition or medical expenses.

In addition to the annual exclusion, each individual has a lifetime gift and estate tax exemption (also applied to the generation-skipping transfer tax). For 2025, the exemption is $13.99 million per person. Transfers above this threshold are subject to gift and estate taxes at a rate of up to 40%.

Under the One Big Beautiful Bill Act, signed into law on July 4, 2025, the lifetime exemption will permanently increase to $15 million per person beginning in 2026, with future adjustments indexed for inflation. This change prevents the scheduled reduction of the exemption that would have occurred under prior law.

[Last reviewed in August of 2025 by the Wex Definitions Team] 

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