5

We are planning to pay for kids' education using the annual $28,000 limit of tax free gift. Do we have to send money from each parent's single bank account? If, for instance, I send $28,000 from my bank account, is it qualified as parent's annual limit? We are married and filing for a join tax return.

Another simple option is to send money from a joint account, however, we do not have one.

  • 4
    I'm not sure you need to use the gift exemption to pay for your children's education. That's traditionally been considered a parent's responsibility, at least until and including undergrad, so I would think that is already not required to be gifted to them, unless you're planning on giving them full control over the money and not requiring it to be spent on education, no? – Joe May 25 '16 at 20:27
  • When it comes time for aid, money in their name has a higher percent expected contribution than your money. If you are in the right income range, this might be an issue. – JTP - Apologise to Monica May 25 '16 at 23:15
9

Why limit yourself to $28K per year? If you pay the tuition directly to the institution, it does not count against your annual or lifetime gift-giving totals. You could pay the entire tuition each year with no tax consequences.

The only thing you can't do if you want to go this route is give the money to your children; that's what causes the gift tax to kick in. The money must be paid directly to the school.

  • what are the tax implications of overpayment? When I went to college if I dropped a class or my student loan dispursement was more than what I owed, they would give me (the student) a check. If I was a parent, and I intentionally overpaid, or the student changed their course load to reduce costs after payment was made, would that effectively circumvent the tax code? I know it would be small amounts (several thousand at most I'd think) but it is an interesting thought exercise – Marshall Tigerus Feb 15 '17 at 16:41
6

From the IRS' website:

How many annual exclusions are available?

The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, and 2016 is $14,000.

What if my spouse and I want to give away property that we own together?

You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013 (including 2014, 2015, and 2016).

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

Basically, this means that it doesn't matter which person it specifically comes from as it's a "joint" gift.

There is more complicated paperwork to fill out if the gift comes from a single check and needs to be "split" for taxes. Each parent would need to fill out a separate gift tax return form, essentially proving that both parents approve of the gift. It seems like it's easier if each parent writes a separate check, however it's not a requirement.

  • So he can gift $14k to each kid and his wife can also gift more $14k ??? Or is the limti only $14k per child because they do a joint filling? – Mindwin May 25 '16 at 20:10
  • They can gift $28,000 total, it's $14,000 per giver, not recipient. – BobbyScon May 25 '16 at 20:12
  • 2
    Giver/recipient combination. If they have 2 kids, it multiplies to $56K – JTP - Apologise to Monica May 25 '16 at 20:22
  • Correct, sorry, should have been clearer about that. Good catch @JoeTaxpayer! – BobbyScon May 25 '16 at 20:36
1

If the child is a dependent the question is moot. It is accepted that the parent will pay for some, most, or all of the tuition. There is no tax issue for a current student. The payment of tuition helps them qualify as a dependent.

There is no need to transfer the money to the child's account; it can be sent directly to the school.

If the money is to be used in the future there are accounts such as 529s pre-paid accounts, and Coverdell savings accounts that can be used. All have pluses and minuses, all can impact taxes, and all can impact financial aid calculations.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.