The federal gift tax is a tax on the transfer of property from one individual (the donor) to another (the donee) when the donor receives nothing—or less than full value—in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer of a gift of any type of property. You make a gift if you give property (including money) or the use of or income from property without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

For additional information, see Internal Revenue Service (IRS) Form 709 and its instructions.

In Pennsylvania, as in all states, the federal gift tax is governed by federal law, not state law. The gift tax applies to transfers of property where the donor does not receive full value in return, and it is intended to prevent the tax-free transfer of wealth. The donor is typically responsible for paying the gift tax, although under certain circumstances, the donee may agree to pay it instead. As of the current regulations, each individual has an annual gift tax exclusion amount ($16,000 for 2023), below which gifts do not need to be reported and are not subject to tax. Gifts above this amount must be reported to the IRS using Form 709. There is also a lifetime exemption amount that applies to gift and estate taxes combined. It's important to note that Pennsylvania does not impose a state gift tax, so residents are only subject to the federal regulations regarding gift taxes.