Gift Tax Implications: Supporting Adult Children in 2025
Published Date: August 04, 2025
Published By: Jac Cantos, Upcloud Accounting
Helping adult children financially is common, but understanding the gift tax implications is crucial. UpCloud Accounting clarifies the rules and helps you navigate this area of tax law.
Key Considerations for Gift Tax
Annual Exclusion: You can gift up to $19,000 per recipient in 2025 without filing a gift tax return. This is per recipient, per year.
Lifetime Exemption: The lifetime exemption for gifts and estates is $13.99 million in 2025 (increasing to $15 million in 2026). You generally won't owe gift tax unless your lifetime gifts exceed this amount.
Gifts vs. Payments: Payments for services rendered are not considered gifts.
Is Your Adult Child a Dependent?
If your adult child is your dependent, financial support is not considered a taxable gift. For 2025, to claim your adult child (age 19-24) as a dependent, they must be a full-time student for at least five months and you must provide more than half of their support. For adult children age 24 or older, they must have less than $5,200 in gross income and you must provide more than half of their support.
What Constitutes a Taxable Gift?
The IRS defines a gift as a transfer of property or money without receiving full value in return. This includes cash, property, and interest-free loans.
Gift Tax Return Filing Requirements
You must file Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) if you exceed the annual gift tax exclusion ($19,000 in 2025). However, filing a gift tax return doesn't automatically mean you owe taxes. You only owe gift tax if your lifetime gifts exceed the lifetime exemption.
Non-Taxable Transfers
These are not considered taxable gifts:
Tuition payments made directly to the educational institution.
Medical expenses paid directly to the medical provider.
Payments for services rendered (must be reasonable and for actual services provided).
Payments to Adult Children for Services
Payments made to your adult child for work performed in your business are not considered gifts. These payments are deductible as business expenses, and your child can contribute to a retirement plan if they meet the requirements. Payroll taxes may apply if your child is over 21.
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Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at [email protected].
