How to Gift Money - Experian (2024)

1. Cash

For smaller sums, cash is an easy way to gift money. Make your gift look nice by getting crisp, new bills from the bank.

Benefits of Gifting With Cash

• It's a good option for young children or people without bank accounts.
• The recipient can use cash immediately.

Drawbacks of Gifting With Cash

• Mailing cash is risky.
• Getting cash requires a trip to the bank or a store that gives cash back for transactions.
• Depositing cash requires a trip to the bank.
• Some people rarely use cash; some businesses don't accept it.

2. Check

Checks can be more practical than cash for larger sums. To fill out a check, write in the date, the recipient's name and amount, sign your check and send or give it to the recipient.

Benefits of Gifting With Checks:

• Mailing checks is safer than mailing cash.
• With a mobile banking app, recipients can conveniently deposit checks using a smartphone.
• Your checkbook register creates a record of the check (and the gift).

Drawbacks of Gifting With Checks:

• Recipients without bank accounts may have to pay fees to a check-cashing store or retailer to cash the check.
• If the recipient waits too long to cash it, your account may not have enough money and the check could bounce, incurring an overdraft or nonsufficient funds fee.
• After six months, banks and credit unions may no longer honor an uncashed check.
• Checks can be lost or stolen by crooks who erase everything but your signature and make the check out to themselves.
• Recipients can't always access the funds immediately. By law, $200 of a check must be accessible the following business day after depositing it. The rest is usually available the business day after that, but deposits over $5,000 may take longer.

3. Bank Account Transfer

An ACH transfer or wire transfer can electronically transfer funds directly from your bank or credit union account to the recipient's account, domestically and internationally. If funds are needed immediately, a wire transfer is generally processed the same day. ACH transfers usually take one business day and may take longer.

You'll provide the recipient's name, bank account number and bank routing number to initiate the transfer. ACH transfers are usually free; wire transfers typically charge fees as high as $50 to both sender and recipient.

Benefits of Gifting With Bank Transfers

• They're a good option for large sums of money.
• Data encryption makes electronic funds transfer safer than cash or checks.
• They're a relatively fast way to send money internationally.

Drawbacks of Gifting With Bank Transfers

• Sending money may involve fees.
• ACH transfers can take several business days.
• You can't always cancel an electronic transfer in case of error.
• The per-day transfer amount may be limited to $100,000.

4. Gift Card

Does cash seem too transactional for a special occasion? A gift card for a favorite retailer, restaurant or other business feels a bit more "gift-like." You can purchase retail gift cards from the business itself or from supermarkets, drugstores and similar locations. Discount websites such as CardBear and CardCash sell gift cards for less than face value. Gift cards may come preloaded with a certain dollar amount or allow for loading custom amounts.

Don't know your recipient's preferred businesses? Consider prepaid cards. They look like credit cards, work like gift cards and can be used at any business that accepts the card's payment network (such as Visa, Mastercard or American Express). You can buy prepaid cards from similar places as gift cards. Many can be reloaded, so the recipient can keep using them.

Benefits of Gifting With Gift Cards

• It can feel more festive than cash or a check.
• They're conveniently available from many sources.
• The recipient can regift or sell the gift card if desired.
• Gift cards aren't subject to sales tax.
• Buying a discount gift card can save you money.
• Children or others without bank accounts can access the convenience of a credit card.

Drawbacks of Gifting With Gift Cards

• Prepaid cards may charge a variety of fees, which eat into the gift amount.
• Gift cards may eventually expire (although by law, they can't expire until five years after activation).
• If the recipient doesn't use the full amount, money is wasted.
• Gift cards can be lost or stolen.
• Preloaded gift cards can be compromised; you might buy a card with no money on it.

5. Payment App

Peer-to-peer payment apps like Venmo, PayPal, Google Pay and Zelle make it easy to give cash. Set up an account, connect it to a funding source (such as a bank account) and use the recipient's email address, phone number, username or QR code to send money.

Benefits of Gifting With Payment Apps

• The recipient can access funds immediately.
• It's easy to send money from anywhere, any time.

Drawbacks of Gifting With Payment Apps

• Apps may charge fees for instant transfers.
• The recipient must have the same app.
• Money sent to the wrong person typically can't be recovered.

FAQs

What Is the Gift Tax?

The giver (not recipient) of money may be subject to federal gift taxes. In 2023, you can give the same person up to $17,000 without paying taxes. However, you probably won't pay taxes even on larger gifts, because the lifetime gift tax exemption is currently $12.92 million.

Whether or not you'll owe taxes, you must file IRS Form 709 for gifts over $17,000. (Gifts to your spouse or tuition or medical costs paid for another person aren't taxed.) Some states also impose gift taxes.

How Do Down Payment Gifts Get Taxed?

Many parents give children cash gifts toward home down payments. Although the giver pays taxes on gifts over $17,000, you and your spouse each have an annual exclusion. To give your child $34,000, each spouse can give $17,000 tax-free. You could also give $17,000 to your child and $17,000 to their spouse. If your spouse does the same, your child's household receives $68,000, and the gifts wouldn't be taxed.

If you're gifting money toward a down payment, you may be asked to fill out a gift letter explaining to the recipient's lender that the gifted money does not need to be repaid.

What's the Best Way to Gift Money?

The best way to gift money depends on many factors, including your personal preferences, the situation, the amount of the gift and the financial tools available to you and the gift recipient. You might gift money to the same person in different ways over a year—a gift card for a birthday, a check for college graduation and a bank transfer to help with a down payment, for example.

All gifts are potentially subject to gift taxes, but you can avoid the gift tax by paying for certain expenses directly rather than giving a gift. For example, you could pay the caterer for your child's wedding, pay your granddaughter's tuition directly to her school or pay the hospital after your cousin's surgery and not trigger the gift tax.

The Bottom Line

While you're giving others money, give yourself the gift of financial health by staying on top of your credit score. You can set up free credit monitoring from Experian for alerts to changes in your credit score, helping spot potential fraud.