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Tuition and Medical Expenses Gifts Aren’t Taxable

It’s been said, “It is better to give then to receive.” I think we can all agree it is much better to receive without worrying about paying taxes.  Under current federal law, most individuals can receive annual gifts of up to $13,000 without being subjected to a federal gift tax. This amount is set to increase to $14,000 in 2013.  While many may know about the $13,000 gift-tax exclusion amount, many may not know that there are two exceptions that provide for greater gifting opportunities without taxation.  One is when the gift is for tuition and the other is when the gift is for medical expenses.  Any amount paid for someone else’s tuition directly to a “qualifying” educational institution is excluded from the gift tax calculation.  “Qualifying” educational organizations include those where their primary function is formal instruction.  The organization must maintain a regular faculty and curriculum with students that attend where the educational activities are conducted.  Also, if the organization has non-educational activities, these must be incidental to the educational programs. A comprehensive definition of “qualified” medical expenses can be found in Internal Revenue Code Section 213, but includes payments for medical insurance and long-term care services such as cost of nursing homes or assisted living facilities, if provided by a licensed health care provider.  However, it should be noted that “qualified” medical expenses do not include cosmetic surgery, unless to correct a birth defect or disfigurement.

*This does not constitute tax or legal advise. Please contact your tax professional to make sure any such "gifts" qualify.