Do you know that you even have to pay taxes on the gifts you give to someone? But things are a little different when you give your spouse gifts. Does the question always arise what happens when you give gifts to your spouse? And how much is the gift tax?

If you’re married, you may consider giving your spouse cash or a gift card to treat them to something nice during the holidays. The IRS says that these gifts aren’t taxable because they don’t count as income.

However, if you’re single, you may want to reconsider gifting your significant other; these gifts are taxable. There are several ways to determine whether a gift is taxable when giving it to someone other than your spouse. One method is to look at the form of payment. For example, if you pay for something using a credit card, you don't owe taxes on the amount paid.

What Is Gift Tax?

Before getting into the details of whether gifts made to your spouse are taxable, you need to know what gift tax means. Don’t worry; you don’t have to pay taxes for every small gift you give your spouse.

These taxes are applied to large, expensive gifts, which could also be categorized as assets such as properties. And the receiver does not pay the tax. Still, the giver's responsibility is to clear taxes if implemented on that specific gift.

There are specific borderline amounts, and if these limits are exceeded, it becomes mandatory for the giver to pay taxes. It is different from a typical standard amount as it changes every year. In 2021, this amount was $15,000, which was later increased to $16,000 in the next financial year of 2022. And this applies only to one person, which means that giving multiple gifts to different people under this limit is not a problem.

Moreover, the gift tax rate is directly proportional to the gift amount, which means the more expensive the gift, the more tax you will have to give if you are on the giving side. The rates start at 18 percent and can go beyond 35 percent.

Do You Have to Pay Tax When Giving a Gift to Your Spouse?

The simple answer to this question is no! You do not have to pay taxes while gifting anything to your spouse. This lies under the jurisdiction of the unlimited marital deduction, which claims that if both the husband-wife are US citizens, they can transfer anything to their spouses without paying taxes.

What Happens When Your Partner is Not a Citizen?

Suppose one of the partners is not a US citizen. In that case, the situation can be complicated as tax may be implemented if the gift amount is more than the limit set by the US government for that year. According to gift tax exemption 2022, this limit is $164,000, which had increased by $5,000 from the previous year.

Can Husband Give Wife Gift in Cash?

There is no definitive answer to this question, as it depends on the couple's preferences. There is no limit to how much cash is taxable when you give it to your wife as a gift.

Additionally, IRS is very carefully looking at cash transactions as many people use it as a helpful way to save on expensive or impractical gifts. There are also special tax offers on women’s day, where minimal taxes are implemented.

How does the IRS know if you Give a Gift to Someone?

The IRS generally knows if you give a gift to someone if you report the gift on your tax return. If you do not report the gift, the IRS may be unable to determine whether you gave the gift to someone.

There is a specific form for this called the IRS gift tax form 709, any gift worth more than $17,000 should be reported in this form. And if you think you can trick IRS, then you are wrong, as everything becomes apparent when the audit occurs. IRS matches transactions reported for certain assets, and even banks can be a source to track you. The banks can report transfers from one bank account to another.

How Do I Avoid Gift Tax?

We discussed above that there is a specific limit amount you should gift to your relatives for being liable to pay gift taxes. The IRS in 2023 requires that gifts given to individuals over $17,000 per year be reported on their income taxes. This means gifts under $14,000 are not taxed at all.

Suppose you want to gift property or stocks on which capital gain is to be applied. In that case, the circumstances will be a little different, and it would be obligatory for you to pay taxes. Capital gains are profits realized on the sale of assets. When you sell an asset, you pay capital gains taxes on the profit you receive. However, capital gains are only taxable if you hold the asset for longer than one year.

What are the Consequences of Gifting Too Much?

There are many consequences of gifting too many assets to relatives, which can get you in deep trouble, so you should be careful before considering gifting.

You can get stuck with bad investments. You may think you're helping someone out by making them a gift, but you could wind up owning shares in a company that goes bankrupt. Or you could invest in something that could work better.

Another consequence is that you could lose access to your money. If you live with your parents or spouse, you could find yourself homeless if you don't pay enough attention to your finances.

Moreover, IRS will have a sharp eye on you regarding your expenses, and they will tax you heavily on your annual income, which could potentially reduce your expenses.

Final Thoughts

So finally, you now know that there is no tax to be given on gifts given to your spouse. However, there are specific gift tax rules when giving it to someone else, such as a borderline limit of $17,000. But you also must remember that things are different if your spouse is not a US citizen, and the giver will have to pay tax if the amount is too high.