How Much Tax Is Owed on the Gift to My Kids?

This is a common question we hear. I’ll clear up one facet with a simple statement.
Your kids will never pay tax on a gift you give them.

Now, whether you owe taxes or not is a more complex answer…
…but not really.

For the VAST majority of the US population, you will NEVER pay an ounce of tax on any gift you give your kids (or anyone else, for that matter). Here’s why:

Why You Likely Won’t Pay Gift Taxes

Annually, you have an exclusion amount you can give to any entity (e.g., your son and his wife, your grandkids, a trust, or your sweet mama - don’t you love calling them entities? 😊). In 2025, that amount is $19,000, and it rises every year. I don’t know a whole lot of people giving that amount to one person.

The annual exclusion amount being per person means that if you give $19,000 to Steveie, you can give another $19,000 to your daughter Janie, $19,000 to uncle Fred, and another $19,000 to your friend Little Debbie. All free of taxes to both the giver (donor) and the receiver (donee).

If you give over the annual exclusion amount to any one person, you then tap into your lifetime estate/gift tax exemption. You’ll file Form 709 that year to report the gift, BUT unless you have already used up the entirety of your nearly $14M lifetime (and rising) estate/gift tax exemption, you won’t send Uncle Sam any tax. That is trued up at your death, and Form 709 is the accounting mechanism for settling the gifts you gave during your life above the annual exclusion amounts against your estate. Again, most will likely never breach the lifetime exemption and owe gift tax.

Couples can, if they elect split gifts, combine their annual exclusion amount to reach double the annual amount. There are some nuanced rules about how and when that is reported on Form 709, so be sure to consult a tax pro to file accurately. What’s amazing about this is that, as an example, if a husband and wife want to give up to their annual exclusion amount to their married daughter’s family with two grandkids, they can give $152,000! (2 donors x $19,000 x 4 family members)

Additional Gift Tax Facts

• Spousal Gifts
  Spouses can make unlimited gifts to each other, which can help with estate planning and balancing assets between each spouse’s estate.

• Education and Medical Exemptions
  Money paid directly to a school or medical facility (avoid running it through the donee’s bank account first because that doesn’t qualify) for education or medical care on behalf of someone is not subject to gift tax rules and not part of your annual exclusion.

• Deductibility of Gifts to Schools or Hospitals
  These gifts made on behalf of individuals to schools or hospitals are not tax-deductible, but gifts made directly to qualifying 501(c)(3) organizations (like schools or hospitals) for the organization’s general use are.

• Education Savings Plans
  Special rules exist for giving to your kids or grandkids through 529 education savings plans. You are allowed to front-load five years’ worth of annual gift exclusion in one year. Then, you must wait five years to make additional gifts to their 529 account to avoid triggering the use of your lifetime exemption.

• Fringe Cases
  There are some special arrangements where a donee CAN AGREE to pay gift tax. This is a fringe case, and I always advise consulting with a tax pro when it comes to fringe cases.

Why Do Parents Gift to Their Kids?

I’ve found these reasons to be common besides the simple reason of being generous:

• Set Their Kids Up with a Solid Foundation
  Some want to provide for a home downpayment or pay costs that enable their family to have upward economic mobility.

• Estate Tax Planning
  By giving now, they reduce the chance of hitting the estate tax limit and having less of their assets pass to the next generation tax-free. Given the high lifetime exemption, this is not especially concerning for most; however, some states have their own lower estate tax thresholds that folks hit much sooner. We identify these sorts of opportunities and partner with you and your attorney to draft documents that manage your estate tax liability.

Advice for Parents Gifting to Children

If there’s one piece of advice I can give parents about gifting to their children, it’s this: Give with NO strings attached. Make sure your kid knows this through your words and actions.

Advice for Everyone About Giving

If there’s one piece of advice I can give everyone about giving, it’s this: Giving is one of the most worthwhile things you can do. You’ve been blessed to be a blessing, not just to your kids but to others. Keep your wallet full of cash and the eyes of your heart open to the opportunity in front of you. You don’t need a tax deduction to exercise generosity!

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At the Dala Group, we value generosity. We help you think through all the facets of your desires to be generous to your family, individuals, and charitable causes you’re drawn to, whether they be emotional, values-based, or technical. Let’s have a conversation.