Q: If someone gives me money as a gift, do I have to pay income tax on it?

A: Generally, no.

One of the most common tax misconceptions is that receiving money as a gift automatically creates taxable income. In most cases, it doesn’t.

Here are a few important points:

• Gifts are generally not earned income.
Because a true gift isn’t payment for work or services, the recipient generally does not owe federal income tax simply because they received it.

• The same principle generally applies to inheritances.
Money or property inherited from a family member or friend is also generally not taxable income to the recipient, although other tax rules may apply in certain situations.

• Not every payment is a gift.
If money is received because you performed work, provided services, or met certain requirements, it is generally not treated as a gift and may be taxable. In other words, what matters isn’t what the payment is called—it’s why you received it.

Bottom Line:
If someone gives you money simply out of generosity—for example, for a birthday, wedding, graduation, or to help during a difficult time—the recipient generally does not owe federal income tax on that gift. Questions about whether the person giving the gift has any reporting requirements are a separate issue and will be the subject of a future Money Map Tip.