Well, your grandparents have decided to give their grandchild a nice mid-summer bonus. An unexpected monetary gift is certainly a nice surprise, but do you need to worry about handing over a chunk of that check to good old Uncle Sam?
Annual Limits
There are some annual limits you’re allowed before you have to concern yourself with paying Uncle Sam. Each year the IRS pre-determines those limits, which means you’re allowed to accept a gift at or below that limit before you have to worry about paying taxes.
If you’re married, you can receive double the limit before you need to worry about taxes.
When The Limit Rule Does Not Apply
There are instances when the limit rule does not apply, and someone can be gifted any amount and not worry about taxes.
For purposes of the gift tax, a “gift” is not considered a gift when:
- It’s given to a spouse who is a U.S. citizen. There are special rules that apply to spouses who are not United States citizens.
- If the gift is paid directly to a medical institution for someone’s medical bills, or to a school for another individual’s tuition. It does not have to be a relative in either circumstance.
Who Files the Tax Return
If someone gives you more than the annual exclusion, that individual must file a gift tax return. However, the filing of a return does not mean gift tax is owed. Each year, the amount someone gives another person over the exclusion amount accumulates, eventually reaching the lifetime exclusion amount.
Just with just about every area of the tax law, gift tax can be confusing to some. Please reach out to our team for more information on gift tax and other tax issues.
