Q. I’ve heard a person pay the medical and education expenses directly to the provider for anyone and it’s not a taxable gift. What about other than medical & education expenses? Also, is there any dollar limitation?
— Unsure
A. Thanks for your question.
The IRS considers any transfer to an individual, either directly or indirectly, for less than fair market value, to be a taxable gift to be paid by the donor.
However, there are a number of exclusions, said Tom Szieber, a trusts and estates attorney at Herold Law in Warren.
Let’s start with the annual exclusion, which for 2021 is $15,000, he said.
An individual may give gifts totaling $15,000 or less to as many persons as he or she wishes without using any of his or her lifetime gift/estate tax exemption or paying any tax, Szieber said.
However, if he or she gives more than $15,000 to any one person, any portion of the gifts exceeding $15,000 will reduce his or her lifetime exemption by that amount, he said.
The lifetime exemption is $11.7 million in 2021.
Any amount gifted that exceeds the exemption amount will be taxed, he said.
“Married couples may give a total of $30,000 in gifts to any one person in 2021,” Szieber said. “However, the couple will need to file a gift tax return to `split the gift’ and utilize the $30,000 exclusion if either individually gives more than $15,000.”
As you said, the payment of qualifying medical expenses and/or tuition — but not books, supplies, room and board — to a qualifying educational organization are not considered taxable gifts as long as payments are made directly to the provider or educational institution, Szieber said. Neither are gifts to one’s spouse or to political organizations.
“They do not count against the yearly exclusion nor the lifetime gift/estate tax exemption,” he said. “In addition, gifts made to qualifying charitable organizations are tax deductible on the donor’s gift tax and income tax return.”
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
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