Do I Have to Worry About Gift Tax?

July 27, 2024 DINARRECAPS8

If I Give My Child $30,000 Towards Their Wedding, Do I Have to Worry About Gift Tax?

Mark Henricks Sat, July 27, 2024 SmartAsset

Imagine your child is getting married and you want to help pay for their wedding. You’ve been saving for years and now have $30,000 set aside for their big day, which you plan to hand over in the form of a check.

However, before you pass along that much cash, it’s important to understand the potential tax implications of making a $30,000 gift. A gift that size could require you to pay the federal gift tax, which can reach up to 40%. The good news is you may avoid paying gift taxes altogether, but there are reporting requirements and other limitations to keep in mind. Consult a financial advisor to minimize your gift tax obligations.

Federal Gift Tax at a Glance

The federal gift tax applies when you transfer money or property to someone else without receiving something of equal value in return. Gift tax rates range from 18% to 40% based on the size of the gift.

However, not all gifts trigger this federal tax. The IRS allows you to give away up to $17,000 ($34,000 for married couples) per year to each individual without owing any taxes on the gift. This is called the annual exclusion, and in 2024 it will increase to $18,000 per person.

However, gifts that exceed this annual exclusion aren’t necessarily taxed either. Instead, they reduce the amount of money or property you can give away tax-free over the course of your lifetime. This lifetime limit is known as the basic exclusion amount or lifetime exemption and it’s adjusted each year for inflation.

The gift tax only applies when you exhaust your lifetime exemption. In 2023, a person can give away up to $12.92 million over the course of their lifetime without triggering the gift tax (this will increase to $13.61 million in 2024). For example, if someone were to give away $13 million, they would pay gift taxes on only $80,000. And if you need additional help planning for major gifts, consider matching with a financial advisor.

How the Gift Tax Could Affect a $30,000 Wedding Gift

If you want to give a child $30,000 to help pay for a wedding, there are a few different ways it could be structured.

As a gift solely from you to your child, a $30,000 wedding gift would avoid most tax liability on its own. The gift only exceeds the $17,000 annual exclusion for 2023 by $13,000, so that’s all that could potentially be taxable if you’re single.

If this is your first time exceeding the annual exclusion, there’s more good news. In that case, the $13,000 excess would simply reduce your $12.92 million lifetime exclusion by that amount. You would not actually have to pay any gift tax unless you exceed your remaining lifetime exclusion, though you still have to fill out Form 709.

Alternatively, you could gift both your child and their future spouse $15,000 each and avoid the annual exclusion threshold (remember, you can gift up to the annual exclusion amount per year per person).

To make sure you structure your gifts in your best interest, talk it over with a financial advisor.

How to Avoid Gift Tax on a $30,000 Wedding Gift