Gift Tax

A federal tax applied to an individual giving anything of value to another person. For something to be considered a gift, the receiving party cannot pay the giver full value for the gift, but may pay an amount less than its full value. It is the giver of the gift who is required to pay the gift tax. The receiver of the gift may pay the gift tax, or a percentage of it, on the giver's behalf in the event that the giver has exceeded his/her annual personal gift tax deduction limit.

Investopedia Says:
The following are generally excluded from gift tax:

1. Gifts to one's spouse.
2. Gifts to a political organization for use by the political organization.
3. Gifts that are valued at less than the annual gift tax exclusion for a given year.
4. Medical and educational expenses - payments made by a donor to a person or organization such as a college, doctor or hospital.

As the regulations applied to gift taxes are very complicated, it is best to check with your respective tax authorities if you have given anyone a gift valued at more than $10,000.

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Graduated tax, levied on the donor of a gift by the federal government and most state governments when assets are transferred from one person to another. The more money given as a gift, the higher the tax rate. The Economic Growth and Tax Relief Reconciliation Act of 2001 set top gift tax rates at 46% in 2006, falling to 45% in 2007 and thereafter. The Economic Recovery Tax Act of 1981 allowed a $10,000 federal gift tax exemption per recipient. This limit is indexed for inflation in $1,000 increments, according to the Taxpayer Relief Act of 1997, and it rose to $12,000 in 2006. This means that individuals can give $12,000 a year free of gift tax to another person ($24,000 from a married couple). The gift tax is computed on the fair market value of the asset being transferred above the $12,000 exemption level. For those making gifts over the limit, a federal gift tax return using IRS Form 709 must be filed by April 15th of the year following the year of the gift. Gifts between spouses are not subject to gift tax. Many states match the $12,000 gift tax exemption, but some allow a smaller amount to be gifted tax-free. See also Federal Gift Tax; Gift Splitting.

Federal tax upon a monetary gift to a relative or friend. Generally, each person may give up to $11,000 per year to each Donee without imposition of a federal gift tax. On higher gifts, there may be a gift tax, or the gift may affect the Donor's Estate Tax.
Example: Mr. And Mrs. Abel together give $22,000 this year to each of 3 sons ($66,000 total). There will be no gift tax imposed.

A tax which is imposed on transfers of property by gift during the transferor's lifetime. While the federal government imposes a gift tax I.R.C. §2501 et seq., most states do not. The federal gift tax is imposed at the same rates as the federal estate tax. I.R.C. §2502(a).