Can I Be Taxed on Money Gifts From Abroad?

The Internal Revenue Service taxes gifts differently than income. If you receive a gift of money from someone living abroad, how the money is reported to the IRS depends on the amount and the residency of the giver. Gifts under $14,000 a year are excluded from federal income taxes as of 2013.

Income vs. Gift

The IRS specifically defines a gift as the transfer of property or money by one person to another person without the expectation of receiving anything in return. If you receive the gift with the expectation of performing a service, the money is income, not a gift. In such a case, complete Form 2555, attach the form to your tax return and report the foreign income as "Other income" on Form 1040.

Gift Tax

If the money you receive is distinctly a gift, taxes are owed on the transfer of money if the gift exceeds the annual exclusion rate and is not included in the unified credit -- a lifetime credit of $5.25 million that combines the gift tax and estate tax. The donor, or the person giving the gift, is subject to the gift tax, not the person receiving the gift. If the person giving the gift is a U.S. citizen living abroad, he must report the gift on his own return and pay the gift tax. If he is a citizen of another country, the U.S. tax law does not apply.

Reporting a Gift

The IRS does not require you to pay tax on a gift, but you might still be required to report the money. You must complete Form 3520, an informational return, to inform the IRS of the bequest if the gift is more than $100,000 and from a foreign estate or a nonresident alien. Do not include gifts paid on your behalf for tuition or medical expenses. File the form separately from your income tax return.

Gifting to Someone Else

If you are a U.S. citizen living abroad and send a gift to another U.S. citizen, you must report the gift on Form 709 and attach the form to your tax return. You do not have to pay tax on or report gifts that are less than the annual exclusion rate, used for tuition or medical expenses or given to a political organization. In addition, gifts between spouses are excluded from taxes.

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About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.

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