Getting a cash gift can feel like a lucky break. But if it’s a large amount, such as a down payment for a house or money for a car, it may bring up the question: Do you have to pay taxes on gifted money?
The good news is that if you were gifted money, you generally aren’t the one responsible for gift tax. Gift givers may have tax obligations depending on the size of the gift.
Before you give or accept money, it’s important to understand the rules for gifting money to family and friends, who’s responsible for taxes, and what type of transaction records you should keep.
Key takeaways
- As long as it’s given with no expectation of repayment or services in return, a cash gift is not considered income by the IRS.
- You don’t have to pay taxes on gifted money. The person giving the gift is usually responsible for paying any gift tax.
- Even though you likely don’t owe taxes when someone sends you cash, it’s smart to keep a record of large gifts and online transfers.
- If you were gifted money, consider using it to build savings, pay down debt, or fund future expenses.
1. Understand what counts as a gift vs. income
Is a gift of money considered income to the IRS? When someone gives you money, no strings attached, it’s natural to wonder. Fortunately, there are guidelines to help distinguish between gifts and income.
According to the IRS, a gift is something given with no expectation of repayment or services in return. This could be a check from a friend on your wedding day, a holiday envelope from your grandparents, or financial support from your parents during a difficult time. If you were gifted money, it doesn’t need to be reported on your annual taxes.
Income is money you earn. It’s wages, freelance payments, business profits, employee bonuses, and so on. These funds do get reported as income at the end of the year and are taxable.
2. Learn who is responsible for paying gift tax
You don’t typically owe anything to the IRS just because you were gifted money. In most cases, it’s the person giving money (not you) who’s responsible for paying any potential gift tax. The gift giver needs to report if the gift exceeds certain limits.
How much money you can gift tax-free depends on annual limits and lifetime exemptions set by the IRS. In 2025, individuals can give up to $19,000 to a single person without having to report the gift to the IRS. And even if they go over that amount, they won’t owe taxes until maxing out the lifetime gift exemption ($13.99 million in 2025). With the lifetime exemption so high, most taxpayers never have to pay a gift tax.
3. Keep documentation for financial or legal records
Even though you probably don’t have to pay taxes on gifted money, it’s still a good idea to keep records of large transactions in case they come up later in legal, financial, or tax conversations.
For example, if someone gave you money to help buy a home, your lender may ask for a formal gift letter that confirms the funds aren’t a loan. Without that documentation, your mortgage could be delayed or denied.
So, save any written notes, bank statements, or digital receipts that show when and how the money was given. If you transfer money online, keep a copy of the confirmation and transaction details.
Keeping records like these isn’t just for taxes, it’s also a smart way to protect yourself and your finances in the long run. Good documentation now can help avoid confusion later.
4. Plan how to responsibly use the gifted funds
Getting a cash gift can be both surprising and exciting. Before you splurge, take some time to think about how this new money can be used to support your biggest and most important goals. Whether it’s $200 or $20,000, a thoughtful plan can help you make the most of a cash gift.
For example, you might use the money to build up your emergency savings, pay off medical bills or a credit card, chip away at student loans, or invest in future expenses like school or travel. Large money gifts don’t come along every day, so make that money work as hard as possible for your future.
Send money to family and friends with Western Union
Regardless of whether you’re on the giving or receiving end, it’s helpful to understand how gifting money works, especially when it comes to possible taxes implications. The good news if you were gifted money: You don’t owe gift taxes.
And if you’re planning to gift money to someone, Western Union makes it easy. You can send money online, through one of our many in-person locations, or even to someone without a bank account.
Download the Western Union® app to get started and give generously.
FAQs
No, a gift of money is not taxable by the IRS. If someone gives you money without expecting anything in return, like a birthday check or money to pay your bills, it’s usually treated as a gift. That means you don’t have to report it on your tax return.
No, you don’t have to pay taxes on gifted money. The person giving the gift may need to report it if it exceeds the annual exclusion limit, but the recipient typically doesn’t need to report it at all. That said, keeping a personal record of large gifts could come in handy.
You won’t need to pay income tax on a gift. Gift givers must report gifts over $19,000 per person, but gift recipients usually don’t need to take any action with the IRS.
