US Gift Tax Limits and Form 709 for Expats
While the US taxes all US citizens on their worldwide income, including expats, most Americans living abroad won’t have to pay US gift tax, although they may have to report some gifts they make to others.
What is the gift tax?
The US has a federal gift tax on transfers of money or property to other people as a gift (i.e. when nothing is provided in return) that exceed the personal lifetime exemption. When gifts exceed $15,000 in a year they must be reported on IRS Form 709.
US gift taxation and reporting apply only to the person gifting, not the recipient.
Do American expats have to pay US gift tax?
Americans living overseas are subject to all the same tax and reporting rules as Americans living in the States. This applies to their worldwide finances, irrespective of where or in what currency their income is earned or paid, and includes US gift tax.
In fact, US expats typically have more US tax forms to file compared to Americans in the States, as Americans abroad often have to report their foreign registered bank and investment accounts, and file additional forms to avoid double taxation.
What are the US gift tax rules and limits?
The gift tax is applied to an individual’s gifts over their lifetime. Currently, there is a lifetime exemption of $11.7 million, however President Biden has announced plans to reduce this amount to $3.5 million, so the rules may change for tax year 2022.
“The rules discussed here apply whether you made the gift to family members or to an unrelated friend – a common source of confusion.” – Forbes
If you do exceed the threshold, the gift tax rate scales from 18% to 40%.
Who has to file IRS Form 709?
Some gifts must be reported on Form 709, even with no tax payable. This is so that the IRS can track the lifetime gift amounts.
The rules state that any gift, whether monetary or material items, assets, or property, should be reported on Form 709 if the total value made to a single individual exceeds $15,000 in a year.
Note that the $15,000 allowance is per recipient, so you can give each of your children up to $15,000 in a year without having to report, for example.
Note also that gifts made that exceed the threshold to an American taxpayer spouse aren’t reportable at all, while gifts to a non-American taxpayer (i.e. foreign) spouse are only reportable if they exceed $157,000 in a year.
Both the $15,000 and $157,000 thresholds apply to tax years 2020 and 2021.
If your spouse is also a US taxpayer, both you and your spouse receive the $15,000 allowance each, so you can together gift up to $30,000 a year to any individual.
Certain other transfers don’t need reporting, such as donations to political organizations, or payments made to qualifying educational or medical establishments.
How to file Form 709
Form 709 is a moderately complex form, and expats reporting gifts should seek assistance from an expat tax specialist before filing it.
The form consists of a main page requesting general information and a tax computation, and schedules for reporting gifts over $15,000, gifts made in prior years, and for unused deceased spouse calculations and generation skipping transfer tax.
When is the Form 709 due date?
Form 709 is due on April 15th. This deadline may be different from the Federal tax return filing deadline, which is June 15 for Americans living outside of the US, , unless they request an additional filing extension using Form 4868.
What about expats who haven’t been filing US taxes?
Americans living abroad who haven’t been filing a federal US tax return because they weren’t aware that they had to can catch up without facing penalties using an IRS program called the Streamlined Procedure.