Suppose I want to help a relative, an international student, pay his college tuition before he arrives in the US (let's say the amount is $20k, i.e., over the $14k tax-exempt limit for gifts). He'll pay me back after arriving in the US and setting up his US bank account, with parents wiring in the money. I understand that even if my payment is treated as a gift, tuition is exempt from gift taxation as long as the payment goes directly to his college.

My question is what's the tax implication when he pays me back through bank transfer in the US. In principle, this is repaying a loan, rather than a gift to me, so there shouldn't be any tax. But how does the bank (or IRS) know whether it's a gift or loan repayment? Will the banks, either his or mine, care? Should he file any forms? Should I?

I guess a related question is how is one supposed to report/pay gift tax if it is involved. Is it all based on self-report on tax forms? Or will the bank notify the IRS and then you pay? I hope it's the former, so there is no problem---there is no need to report since it is a loan rather than gift. But if it's the latter, we will have to deal with the banks or IRS, which we'd rather not. We just don't want the trouble even though we can prove it's not a gift. I've done some research and understand this is not cash transaction so it should not trigger currency transaction reports.

Any finance professionals knowledgeable on this? Thanks in advance!

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    The obvious answer (and the recommendation when lending money to friends/relatives) is to draw up a (physical) formal agreement of what's being lent and when it will be paid back. With this documentation, one would hope you shouldn't have any problems with the IRS (but...)
    – TripeHound
    Commented Jul 18, 2017 at 8:48
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    As @TripeHound says, tax law is one of the few places where it's legal --- and generally advisable --- to manufacture your own evidence. You should do so.
    – Peter K.
    Commented Jul 18, 2017 at 12:42
  • In some cultures it's extremely awkward to write a formal agreement for this sort of thing between family members --- it's a lot worse than dealing with the banks or IRS. So no, this is not a viable solution. But thanks for the suggestion.
    – Mas
    Commented Jul 18, 2017 at 17:41
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    @Mas If you are choosing to anger the IRS over your family out of politeness, you may want to reconsider loaning money to a relative in the first place... Commented Jul 18, 2017 at 19:18

1 Answer 1


You don't need to file or do anything.

The bank will report all transfers over 10 000, but chances are slim that it will even be looked at, if you don't do this every week. Worst case, someone will ask you about the source, and you tell them exactly what you wrote above (I had multiple international transfers over 60k and nobody ever asked).

You said you paid his tuition, and he is now paying you back, so in case someone asks, you should be able to produce the documentation on the tuition payment - a bill, or your bank statement showing you paid it; and the amount should be matching, so you have proof.

Note that if he pays you interest, it is taxable income. You are obligated to list it on your next tax filing.

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    Just because you didn't get caught doesn't mean you didn't do it wrong. The right way is to document it as a zero interest personal loan between family members.
    – Xalorous
    Commented Jul 18, 2017 at 14:39
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    Thanks @Aganju. Your answer is informative, but I'm not sure the bank will report all transfers over 10000. I think the report requirement only applies to cash deposits and withdrawals. Also, international transfers are different from domestic transfers. The US does not levy tax on someone sending you money from abroad (with a foreign domicile), but if the money is from within the US, it may be a different story. And Xalorous, as I said above, that's culturally speaking extremely difficult to do.
    – Mas
    Commented Jul 18, 2017 at 18:38
  • And if he doesn't pay you interest, then the imputed interest (value of the loan) is a gift. Commented Jul 18, 2017 at 20:41
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    @Xalorous It is not about not getting caught, you just do it legal and avoid the paper work until someone will ask for it, at that point it is not awkward for his family to sign him such document. Also consider that verbal contracts are valid legally (in the country where I live).
    – Aus
    Commented Jul 18, 2017 at 22:34
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    @Mas Verbal agreements are binding in the US, but IRS is another thing, you will have to prove that it was a loan, without a written agreement they can decide that there is no intention of repayment so you have to pay gift tax. You should rightfully fear the IRS more than being polite to your family, besides, they will be taxed as well, so it is in their interest that you both have a written agreement. Sorry for the confusion, things are different in different countries. Some people back-date written agreements if they have a previous verbal one, although pragmatic, it is a criminal fraud.
    – Aus
    Commented Jul 18, 2017 at 23:51

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