It’s that time of year – the giving season. And with the holidays upon us, a rather misunderstood tax term arises – the “gift tax.” Whether or not the gift tax applies is circumstantial. Basically, for modestly priced gifts, you’re in the clear. If your gift is more substantial, the answer is “maybe.” Knowing how to recognize when certain gifts are taxable during the season of giving will benefit you in the long run, so it’s best to know now.
What is a gift tax?
A gift tax is a tax on, well, gifts. The IRS considers a gift “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.”
The person receiving the gift typically does not have to pay gift tax; that’s on the giver. The person giving the gift will generally file a gift tax return if the gift exceeds the annual gift tax exclusion amount, which is $15,000 (to a specific individual) for 2021. But note, there some exclusions that apply. These gifts are not taxable:
- Gifts that are not more than the annual exclusion for the calendar year
- Tuition or medical expenses you pay for someone (the educational and medical exclusions)
- Gifts to your spouse
- Gifts to a political organization for its use
Are employer gifts taxable?
Many employers like to give gifts to their employees during the holiday season as a gesture of goodwill and gratitude. But gifts given to employees from their employer are a bit of a different concept. In general, the IRS treats any payment from an employer to an employee as taxable income to the employee.
So, this holiday season, make sure you’re on top of not only your gift giving (don’t forget about grandma!), but the tax implications that come along with it. The IRS has an FAQ page dedicated to gift tax, as well as a page on de minimis fringe benefits for more information.
NATP also offers an on-demand webinar, Charitable Giving Tax Strategies, that looks at several charitable giving tax options to give you, the tax preparer, a toolkit of strategies that increase your value to your clients.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.