2020 Gift Tax Rates: I’m Generous, but Do I Have to Pay This?

Written by Julie Fortin in collaboration with Lexicon Content Development on .

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Taxes can be confusing, and the gift tax is one of the most perplexing of the Internal Revenue Code.  

 What is the gift tax?

The gift tax is a federal tax on the transfer of money or property to another person while getting nothing (or less than full value) in return.  Many people don't get hit with the gift tax, because the IRS generally doesn’t care about what you give away to other people unless that giving exceeds some lofty amounts. And even if it does, it might mean you just have to fill out some paperwork.

How much can you gift?

Two things keep the IRS’ hands out of most people's pockets: the $15,000 annual exclusion in 2020, and the $11.58 million lifetime exclusion in 2020. Stay below those and you can be generous under the radar. Go above, and you'll have to fill out a gift tax form when filing returns — but you will still likely avoid having to pay any gift tax at all.

 

How the annual gift tax exclusion works

How the lifetime gift tax exclusion works

What is the gift tax rate?

If you’re lucky enough and generous enough to use up your exclusions, you may indeed have to pay the gift tax. The rates range from 18% to 40%, and the giver generally pays the tax. There are, of course, exceptions and special rules for calculating the tax. 

 Spoiling the grandkids with college money

Springing for vacations, cars, etc.  

Names on a non-spouse bank account

Let’s say you live by Grandma, so for convenience, she puts you on her bank account. Guess what just happened? If you're put as a joint owner on a bank account with somebody and you have the right to take the money out at any time, essentially Grandma has giving you a gift. 

We love to talk about gifting strategies and to help our clients navigate the best strategies for their families.  Please do call your advisor if you have any questions about taking advantage of the 2020 annual exclusion for before year end. 

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