For 2025 and 2026, the federal yearly exclusion is $19,000 per person you give to. You can give that amount to as many people as you want each year. No gift tax. No gift tax return needed. This is one of the simplest gift tax breaks out there.
How the Annual Exclusion Amount Works
The yearly exclusion is a per-person, per-year cap. That means:
- You can give $19,000 to your son, $19,000 to your daughter, $19,000 to each grandchild, and $19,000 to anyone else. There is no limit on how many people you give to.
- If you are married, you and your spouse can each give $19,000 to the same person. That totals $38,000 per person per year. This is called gift splitting.
- These gifts are fully free of gift tax. No return is needed. The amounts do not reduce your lifetime cutoff.
For a married couple with three children and four grandchildren, that is up to $266,000 per year in tax-free gifts. That is $38,000 times seven people. Over a decade, that adds up to major wealth transfer with zero tax cost.
What Happens If You Exceed the Annual Exclusion?
Going over the yearly exclusion does not mean you owe tax right away. It just means you need to file a federal gift tax return (Form 709) to report the extra. The amount over $19,000 is taken from your lifetime gift and estate tax cutoff. That cutoff is $15 million per person in 2026.
Here is an example. Say you give your daughter $50,000 in one year. The first $19,000 is covered by the yearly exclusion. The other $31,000 reduces your lifetime cutoff from $15 million to $14,969,000. No tax is owed. Most people will never come close to using up their lifetime cutoff. Paying gift tax is rare.
Gifts That Do Not Count Toward the Limit
Certain payments are fully exempt from gift tax rules, no matter the amount:
- Tuition payments made straight to a school. You must pay the school directly. Do not pay the student back.
- Medical expenses paid straight to a health care provider. Again, pay the doctor or hospital directly.
- Gifts to a spouse (if they are a U.S. citizen). The marital deduction allows unlimited gifts between spouses.
- Gifts to qualified charities. Charitable gifts are not subject to gift tax.
These exist alongside the yearly exclusion as separate breaks.
Generation Skipping Transfer Tax
If you plan to give large amounts to grandchildren or great-grandchildren, know about the generation skipping transfer tax. This is a separate federal tax on transfers to someone two or more generations below you. The cutoff is also $15 million per person in 2026. It shares the same threshold as the estate tax cutoff. Most families will not owe this tax. But it is worth knowing about if big gifts to grandchildren are part of the plan.
Why Gifting Matters for Estate Planning
Yearly gifting is one of the simplest ways to shrink a taxable estate over time. Even for families well under the $15 million cutoff, gifting can help avoid probate on those assets. It can put money in the hands of children and grandchildren when they need it most. It also keeps money matters simpler.
One key note for income taxes: gifts made during your lifetime do not get a step-up in basis at death. If you gift stock or property that has grown in value, the person who gets it inherits your original cost basis. That could mean a bigger capital gains tax bill when they sell. For assets that have grown a lot, it may be better to let heirs inherit them instead.
A smart gifting plan, paired with a solid estate plan, puts families in the strongest spot possible.
For the full Arizona walkthrough of federal estate, gift, and GST tax planning, including portability, the lifetime exemption, and annual exclusion gifts, read our pillar guide: Estate, Gift & GST Tax in Arizona: The Complete Guide.