Avoiding the Gift Tax via Direct Tuition or Medical Payments

Written by Nickel - 3 Comments

This morning while exercising I was listening to the Fidelity podcast when I learned something interesting… As you may or may not know, the current gift tax exclusion (i.e., the amount that you can give to an individual recipient in a single year without triggering the gift tax) is $12,000/year.

However, direct payments of tuition or medical expenses on behalf of another person (whether or not that person is related to you) are not treated as gifts for tax purposes — and you don’t even have to file IRS From 709, which covers gifts and generation-skipping transfers. Just be sure that the payment is made directly to the school or medical provider, and not to the person receiving the benefits.

Keep in mind that payments for books, school supplies, room and board, etc. don’t fall under the exception. Also note that allowable medical expenses include anything that would otherwise qualify as a deductible medical expense.

Published on June 5th, 2007 - 3 Comments
Filed under: Taxes
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

Comments (scroll down to add your own):

I wonder how it applies to prepaid tuition accounts like 529’s?
Comment by geo — Jun 5th 2007 @ 2:34 pm
Good to know, I didn’t realize you could do that.
Comment by Blaine Moore — Jun 5th 2007 @ 3:13 pm
Good post.
Comment by Wayne — Jun 6th 2007 @ 10:34 am