Gifting for Graduates

My grandchild is graduating from high school this year. Are there tax implications if I give a big gift?

Congratulations graduates! Graduating high school, college, law school, or receiving any other degree marks an accomplishment for which family members may want to give a gift.  While smaller gifts are more common, sometimes the gift may be more significant in dollar amount.  In New York, a cash gift is not considered income to the graduate, so the gift does not carry a tax burden to the receiver.  However, there are several factors in determining if it is a taxable event for the gift-giver. 

Anytime we discuss taxes, we must look at both New York State and the Federal system.  New York does not impose a gift tax on the gift giver or receiver.  The only time a gift is subject to tax under the state scheme is if it is given within 3 years of the giver’s death.  If grandma gives a gift and dies less then three years later, that gift will be clawed back into her estate for the purpose of determining if there is a New York estate tax owed.  This is only relevant if the gift amount puts grandma’s total estate over the NYS exemption, which is $6.94 million in 2024.  If grandma’s total estate is less then this amount, no tax will be owed.  However, if the estate is taxable, beware of the “cliff.”  New York has a “cliff” tax—once an estate is 105% over the exemption amount, the exemption disappears, and grandma’s estate is taxed from dollar one.  

On the Federal side, the scheme is totally different.  You can gift $18,000 per year, per person, without any tax implications or the requirement to file a gift tax return.  This means that if grandma has multiple graduates she wants to benefit, she can give them each up to $18,000.  If she chooses to gift above that amount to a single person, the IRS rules say she must file a gift tax return for the additional amount.  This is used as a placeholder against her lifetime exemption which, in 2024, is $13.61 million.  It is important to note that the current tax law has a built-in sunset which means that for deaths on or after January 1, 2026, the exemption will be approximately $7 million.  Therefore, if grandma’s estate is well under these limits, no tax will ever be imposed on these gifts.  But if grandma has an estate over $7 million and wants to give a large sum, it should be considered as part of her estate plan to be sure taxes are reduced or eliminated at the time of her death. 

Graduation is a celebratory time.  Friends or family may want to give a gift to help the graduate along on their journey.  This will not create a tax for many, but consideration should be paid to the topic and you should speak with your attorney if you are giving large gifts that may impact your overall plan. 

Author: Britt Burner, Esq.