How to Calculate Gift Tax — Step by Step

The formula, in one paragraph

Gift tax has three steps, and the first two cost most people nothing. First, the annual exclusion: in 2026 you can give $19,000 to each person, every year, and none of it counts. Second, anything over the exclusion is the taxable gift, and it counts against a $15,000,000 lifetime exemption. Third, only when that exemption is used up does any tax come due, at the 40% top rate. A Form 709 is required whenever the taxable gift is over $0. The gift tax is paid by the giver, not the recipient.

Step 1: Work out the annual exclusion

Multiply the number of recipients by $19,000 — or by $38,000 if a married couple is splitting the gift. At the example numbers there is 1 recipient and a single donor, so the exclusion is 1 times $19,000, which is $19,000.00.

Step 2: Work out the taxable gift

Subtract the exclusion from the gift. At the example numbers the gift is $50,000 and the exclusion is $19,000, so the taxable gift is $50,000 minus $19,000, which is $31,000.00. It can never go below $0.00.

Step 3: Work out the remaining lifetime exemption

Subtract the prior taxable gifts you have already used, and this year’s taxable gift, from $15,000,000. At the example numbers the prior used is $0 and the taxable gift is $31,000, so the remaining exemption is $15,000,000 minus $0 minus $31,000, which is $14,969,000.00. Every taxable gift spends some of that one pot.

Step 4: Work out the tax due now

If any exemption remains, the tax due is $0.00. At the example numbers $14,969,000.00 of exemption is still there, so the tax due is $0.00. If it goes below zero, the tax is 40% of the excess.

Step 5: Decide whether Form 709 is needed

Form 709 is required if the taxable gift is over $0. At the example numbers the taxable gift is $31,000.00, so Form 709 is required.

The same arithmetic at other gifts

The same steps scale to any gift. On a $19,000 gift the exclusion is $19,000.00, the taxable gift is $0.00, the remaining exemption stays $15,000,000.00 and no Form 709 is needed. On a $100,000 gift the taxable gift is $81,000.00, the remaining exemption is $14,919,000.00 and the tax is still $0.00.

Splitting gifts between spouses and recipients

Two levers make the exclusion bigger. The first is gift splitting: a married couple can give $38,000 to each recipient a year instead of $19,000. A $50,000 gift from a couple splitting it has a $38,000.00 exclusion, so the taxable gift is $12,000.00 instead of $31,000.00, and the remaining exemption is $14,988,000.00. The second lever is the recipients: $76,000 across 4 recipients at $19,000 each has a $76,000.00 exclusion, a $0.00 taxable gift and no Form 709 at all.

Working backwards from a target

The calculation also runs backwards. For a $100,000.00 taxable gift to one recipient, the gift is $100,000 plus the $19,000 exclusion: $119,000.00. For 3 recipients with no taxable gift, the most you can give is 3 times $19,000 — $57,000.00. To leave exactly $14,000,000.00 of exemption, the gift is $1,019,000.00: $1,000,000 of taxable gift plus the $19,000 exclusion. If $14,500,000 is already used, the most you can give with no tax due is $519,000.00 — a $500,000.00 taxable gift, leaving $0.00 exactly.

When tax is actually due

Tax comes due only once the exemption is used up. With $14,900,000 of prior taxable gifts used, a $200,000 gift leaves a $181,000.00 taxable gift, the remaining exemption is -$81,000.00, and the tax due is 40% of $81,000, which is $32,400.00. With the same prior used, a $119,000 gift leaves a $100,000.00 taxable gift, the remaining exemption is $0.00 exactly, and the tax due is still $0.00 — one more dollar of prior used and the tax starts.

What NOT to do

Do not assume a big gift means a big tax bill: the exemption is what matters, not the size of one gift. Do not forget the prior gifts: a taxable gift you forgot about is the one that starts the tax. And do not skip Form 709 when the taxable gift is over $0.

That box is the whole formula.