Dear Liz: Is it possible to make student loan payments directly toward our son’s lender without them being considered a gift and thereby subject to the gift tax after a certain amount?
Answer: No. But gift taxes aren’t an issue for the vast majority of Americans. You and your spouse would have to give away more than $10 million for gift taxes to be triggered.
You don’t even have to file a gift tax return if the amounts you give are under certain annual limits. The annual gift exclusion in 2017 allows you to give away $14,000 per recipient without having to file a gift tax return, so the two of you could pay $28,000 of your child’s loans without informing the IRS.
Only the amounts above $14,000 count toward the gift tax, and gift tax is owed only when those excess gifts total more than a certain amount, which in 2017 was $5.49 million.
When gift taxes are an issue, there are some workarounds. In addition to the annual gift tax exclusion amounts, people can pay an unlimited amount of someone else’s medical expenses or tuition without triggering gift taxes — as long as the payments are made directly to providers. In other words, the tuition checks need to be made out to the college bursar, not to the child or to another creditor. Paying student loans isn’t included in that unlimited exemption.