gift tax

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Gift tax is a Federal tax levied on any gift, or combination of gifts, from one person to another that exceeds the annual exclusion amount. The annual exclusion amount varies by year but is $16,000 per person as of 2022. This exclusion means you can give $16,000 or less to as many individuals you want in one year without incurring the gift tax. Several kinds of gifts are exempt from this tax: gifts to tax-exempt charities, gifts to your spouse, and gifts made for tuition or medical bills. In addition to the annual gift tax exclusion, every individual has an applicable exclusion amount that can be used to avoid gift and estate taxes. Each individual has a set amount ($12,060,000 as of 2022) of gifts and estates that can avoid gift and estate taxes for their entire life. So, if someone gives over the applicable exclusion amount within their life, they have to start paying Federal gift taxes which hover around can be up to 40%. 

[Last updated in January of 2022 by the Wex Definitions Team]