Enter the gift amount in the following Gift Tax Calculator if it exceeds the lifetime exemption of $12.92 million for singles and $25.84 million for married couples.
Please note that if you haven't exceeded the lifetime exemption of $12.92 million for singles and $25.84 million for married couples (in 2023), then your gift tax is ZERO. The above gift tax calculator is made for the provisions of 2023 set by IRS.
What is Gift Tax and Who Pays it?
The gift tax is a federal tax on money or assets that are transferred to another individual without receiving fair compensation in return. The tax is paid by the gift giver, not the recipient. The Internal Revenue Service (IRS) imposes gift tax rates ranging from 18% to 40% depending on the amount and circumstances of the gift.
Annual Gift Tax Exclusion
The IRS provides an annual exclusion that allows individuals to give money or assets up to a certain amount each year without triggering gift taxes. For 2023, the annual exclusion is $17,000 per recipient ($16,000 in 2022). For example, you can gift $17,000 to your niece and another $17,000 to your friend this year without owing any gift taxes. The annual exclusion is adjusted periodically for inflation.
Lifetime Gift Tax Exemption
In addition to the annual exclusion, the IRS provides a lifetime gift and estate tax exemption. This allows individuals to give away large sums over their lifetime without incurring gift taxes. For 2023, the lifetime exemption is $12.92 million ($12.06 million in 2022). Any gift amounts exceeding the annual exclusion reduce the lifetime exemption. Once the lifetime exemption is exhausted, gift amounts over the annual exclusion will be taxed.
If you are married, you and your spouse can collectively exclude up to $25.84 million in lifetime gifts for 2023 before owing any gift taxes.
Calculating Gift Tax: Rates in 2023
Gift tax rates range from 18% on the first $10,000 above the annual exclusion up to 40% on gift amounts exceeding $1 million. Here is how the gift tax brackets work in 2023:
|Taxable Amount (Exceeding Annual Exclusion Limit)||Gift Tax Rate|
|$0 – $10,000||18%|
|$10,001 – $20,000||20%|
|$20,001 – $40,000||22%|
|$40,001 – $60,000||24%|
|$60,001 – $80,000||26%|
|$80,001 – $100,000||28%|
|$100,001 – $150,000||30%|
|$150,001 – $250,000||32%|
|$250,001 – $500,000||34%|
|$500,001 – $750,000||37%|
|$750,001 – $1,000,000||39%|
For example, if you gift $50,000 to your niece in 2023, you would subtract the $17,000 annual exclusion and calculate gift tax on the remaining $33,000. The gift giver would pay 18% tax on the first $10,000, 20% tax on the next $10,000, and 22% tax on the final $13,000, resulting in a total gift tax of around $6,660.
How much you can gift tax-free?
- The annual gift tax exclusion for 2023 is $17,000 per recipient. This means you can gift up to $17,000 to any number of people each year without owing gift taxes.
- If you are married, you and your spouse can jointly gift up to $34,000 to a recipient by splitting gifts; this allows each spouse to use their own $17,000 annual exclusion.
- In addition to the annual exclusion, there is a lifetime gift and estate tax exemption. This limit is $12.92 million for 2023.
- Any gifts above the annual exclusion will count against your lifetime exemption. You only have to pay gift taxes once the lifetime exemption is exceeded.
- Certain gifts are exempt from the annual limit, including tuition or medical expenses paid directly to the institution, gifts to political organizations, and gifts to qualifying charities.
- The IRS periodically adjusts the annual exclusion and lifetime exemption for inflation.
In short, you can gift a total of $17,000 per recipient each year without owing any gift taxes due to the annual exclusion. You also have a lifetime exemption allowing over $12 million in tax-free gifts over your lifetime. Consult with a tax professional if you plan to gift amounts exceeding the annual exclusion.
How to Avoid Gift Tax?
There are several strategies to avoid or minimize gift tax:
- Stay under the annual exclusion amount when gifting to each individual recipient.
- "Split" gifts with your spouse to double the annual exclusion.
- Pay medical or education expenses directly to avoid triggering gift tax.
- Speak to an estate planning attorney about setting up a trust.
- Time large gifts over multiple years to maximize your lifetime exemption.
Use the Gift Tax Calculator for 2023 estimates based on IRS rates. Consult a financial advisor if close to the lifetime limit to lower taxes owed.
Frequently Asked Questions
How much is gift tax on $100,000?
If you gift $100,000 to someone in 2023, you would subtract the $17,000 annual exclusion and calculate gift tax on the remaining $83,000. This would result in approximately $14,000 in gift tax.
How do I calculate my gift tax?
Add up all gifts to each recipient that exceed the annual exclusion. Use the IRS gift tax rate brackets to calculate tax on the amounts over the annual exclusion. Also, remember to subtract any already used lifetime exemption.
How do I avoid taxes on gift money?
Stick to the annual exclusion amount per recipient, pay medical and education costs directly, split gifts with your spouse, and properly structure trusts and estates.
Can my parents gift me $30,000?
Yes, assuming your parents are married. Together they can gift you $34,000 in 2023 without triggering gift tax by utilizing gift splitting. Each parent can give you $17,000.