How much can I gift to my children annually without paying federal gift tax?
Both Connecticut and the United States impose a tax on gifts you make. But there are a variety of exceptions and exclusions that are built into the gift tax rules. One of the main exceptions is the “annual exclusion.” As of 2022 (the amount changes from time to time), each year a person can give up to $16,000 to a given recipient completely free of that tax. And, this same rule applies no matter how many people you are giving gifts to. For example, you can gift cash or other property to 250 of your closest friends in a given year and every penny of those gifts are completely exempt!
But, if you give more than the annual exclusion amount to any recipient in a given year, then the portion of your gifts which exceeds the exemption amount is taxable and you are obligated to file a state and a federal gift tax return in order to report that taxable gift.
However, just because you have made a taxable gift, that does not mean you need to pay a tax on that gift – not yet anyway. Both Connecticut and the IRS also have an amount that is exempt which you are allowed to gift during your lifetime. The lifetime exemption amount for gift taxes is tied into the estate tax which is calculated when you die. This means that the same amount applies to the cumulative amount of taxable gifts you make throughout your lifetime OR the amount of property you own when you die. In 2022, the lifetime gifts exemption / estate tax exemption is $9.1 million while federally it is $12.06 million. (In 2022, the gift brackets are down to just two rates - 11.6% if the value of the taxable estate/gift is $9.1 million - $10.1 million or then 12% if it moves above $10.1 million or greater.)
Let’s look at the earlier example and say that in 2022 you instead elect to send a check in the amount of $16,000 to 249 of your closest friends, and then you give a larger check to your very best friend in the amount of $26,000. Again, the first 249 checks are entirely within the annual exemption so you wouldn’t need to report those gifts at all. But the check to your best friend would be $10,000 more than the annual exemption, so you do need to report to the State of Connecticut and to the IRS. However, you would need to make millions more in taxable gifts before you need pay any State or federal gift taxes.
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