In both New York and New Jersey, there is no state gift tax. However, both states adhere to the federal gift tax rules and exemptions. In 2026, the federal annual gift tax exclusion is $19,000 per recipient, meaning that if a gift stays within that amount, it generally will not require a gift tax return and will not reduce the individual’s lifetime gift and estate tax exemption. Following the gift tax rules is extremely important because gifting can impact your family’s future estate and Medicaid planning. This article explains the gift tax exclusion and how gifting may affect both estate planning and Medicaid planning.
How do gift taxes and exemptions work in New York and New Jersey?
Like most other states, both New York and New Jersey do not impose a statewide gift tax. However, this does not mean that gifting is entirely without limits, as both states remain subject to federal gift tax laws and exemptions. In 2026, the federal annual gift tax exclusion is $19,000 per recipient, meaning an individual may give up to $19,000 to any number of recipients during the year without triggering a federal gift tax return or using any portion of their lifetime gift and estate tax exemption. For married couples, this amount increases to $38,000 for each recipient through the practice of gift splitting.
Gifts that exceed the annual exclusion amount of $19,000 do not automatically incur a gift tax. Instead, the excess amount uses up an individual’s lifetime gift and estate tax exemption, which is $15,000,000 for each individual as of 2026. Additionally, when the annual exclusion is exceeded, the donor is required to file IRS Form 709 to report the taxable gift. Gift taxes are only owed if an individual’s cumulative taxable gifts surpass their lifetime exemption.
Under federal tax rules, most gifts and transfers for which full monetary consideration is not received in return are considered taxable. However, certain types of gifts are exempt from gift tax. These include:
- Gifts valued below the annual exclusion for each recipient ($19,000 in 2026)
- Gifts of tuition or medical expenses paid directly to another individual
- Gifts to a spouse
- Gifts to political organizations
- Gifts to qualifying charities (these gifts are deductible)
How can gifting impact Medicaid planning in New York and New Jersey?
Gifting can significantly impact Medicaid planning, especially for elderly individuals who may need long-term care. Nursing Home Medicaid has a 60-month (5-year) lookback period, where the state reviews all financial transactions made by the applicant in the 5 years before they applied for institutional Medicaid. This review is designed to identify possible transfers of assets, such as gifts or property sales below fair market value, made to qualify for Medicaid.
This means that even if a gift does not trigger federal gift tax because it falls below the annual gift tax exclusion, it can still result in a Medicaid penalty if made during the lookback period.
These transfers and gifts may lead to a penalty period during which the individual is ineligible for Medicaid coverage for nursing home care. The penalty period is calculated by dividing the total amount of the disqualifying transfers by the average cost of a private nursing home where the applicant resides. This divisor varies significantly by state and region, as New York uses a monthly penalty divisor based on geographic location, while New Jersey uses a daily penalty divisor.
The Medicaid penalty divisors for different regions of New York are:
- $14,146/month for Central New York
- $15,193/month for Long Island
- $15,282 per month for New York City
- $14,783/month for North East
- $15,024/month for North Metro
- $15,675 per month for Rochester
- $13,765 per month for Western New York
Meanwhile, the daily penalty divisor for New Jersey is:
- $420.67 for each day
To put the penalty into context, consider the example of a resident in New Jersey with a $100,000 disqualifying gift transfer. Since the monthly penalty divisor for New York City is $15,282, the penalty period in New York City would be 6.54 months, because $100,000 divided by $15,282 is approximately 6.54. On the other hand, dividing the same $100,000 disqualifying transfer by New Jersey’s daily penalty divisor of $420.67 gives approximately 237.72 days, or about 7.81 months.
This penalty period, which can last from a few weeks to several months, can be extremely draining on families, as families have to pay out of pocket for extremely expensive nursing home costs. This is why it is important for individuals who plan on using nursing home Medicaid to be aware of the impact their gifting can have. A single gift to a family member or friend during the lookback period can result in significant stress and costs in emergency situations when Medicaid assistance is needed.
Families and individuals who wish to qualify for nursing home Medicaid while still gifting assets to loved ones should consider consulting with an experienced Medicaid planning attorney. Through consultation, an attorney can help you plan gifting in a way that minimizes the risk of triggering a penalty period, while potentially helping individuals qualify for Medicaid benefits and avoiding penalties that could delay access to care during emergency situations.
How will gifts impact estate planning in New York and New Jersey?
Gifts can impact estate planning in New York and New Jersey because gifts that exceed the $19,000 (as of 2026) federal annual gift tax exclusion use up the $15,000,000 lifetime gift and estate tax exemption. If the exemption is entirely used up, hefty gift taxes might follow. Beyond federal rules, both New York and New Jersey impose their own considerations regarding estate and inheritance taxes.
In New York, estate planning is particularly sensitive due to the state’s estate tax system. Estates that exceed New York’s estate tax exemption, which is $7,350,000 as of 2026, may be subject to New York estate tax. This is especially concerning for New York residents because of New York’s special estate tax cliff: estates whose value exceeds 105% of the exemption amount are subject to tax on the entire estate, not just the amount above the exemption. This is significant for gifting in New York because the state has a three-year gift clawback rule, under which gifts made within three years of the decedent’s death are added back into the taxable estate. As a result, late gifting may not only fail to reduce estate tax liability, but could actually push the estate above the exemption threshold and trigger significant estate taxes. Therefore, New York residents, especially those with estates near the exemption amount, should plan gifting well in advance to avoid both gift and estate taxes.
In contrast, New Jersey has eliminated its estate tax since January 1, 2018. However, this does not mean that gifting isn’t a concern, because the state still imposes an inheritance tax, which depends on the relationship between the decedent and the beneficiary. Gifting in New Jersey is therefore primarily relevant for inheritance tax planning. Gifts made within three years of the decedent’s death to non-exempt beneficiaries, such as siblings and friends, may be considered made in contemplation of death and can be subject to inheritance tax. This makes careful planning for gifts to non-exempt individuals necessary, as poorly timed gifts can result in unexpected tax liabilities.
Will gift taxes be impacted by the type of trust you have?
Yes, whether a gift is taxable can depend on the type of trust used. If you use a revocable trust, which is a trust that you can change, amend, or revoke at any time while you are still competent, gift taxes are not currently triggered. Because a revocable trust can be changed and the grantor still controls the assets, transfers made into a revocable trust are not considered completed gifts for gift tax purposes. This means that while assets in a revocable trust are subject to estate tax, gift tax is usually not triggered.
This is different from irrevocable trusts, which are trusts that are typically unable to be changed or modified once they are funded, because transfers made to irrevocable trusts are considered completed gifts. These gifts use up an individual’s lifetime estate and gift tax exemption and would typically need to be reported to the IRS. However, with an irrevocable trust, it is still possible to qualify for the annual gift tax exclusion. Many people choose to use a type of irrevocable trust known as a Crummey trust, which allows gifts made to the trust to qualify for the annual gift tax exclusion.
Frequently asked questions
Who is responsible for paying the gift tax?
The person who is typically responsible for paying the gift tax is the person who makes the gift. The recipient of the gift does not have to report the gift to the IRS or pay taxes on it. However, in certain special arrangements, the recipient may agree to pay the gift tax instead of the donor.
Are the gifts that I make deductible on my income tax returns?
No, personal gifts that you make to your friends and family are not deductible on your income tax return and typically don’t impact your federal income tax. However, there are exceptions for gifts made to qualifying charities, because those gifts are tax-deductible.
If I am required to file IRS Form 709, what additional information must be included, and can the return be changed after it has already been filed?
In addition to filing the gift tax return, you should include supporting documentation such as copies of any appraisals, relevant documents related to the transfer, and documentation of any unusual items shown on the return, like partially-gifted assets. Even after a gift tax return has been filed, it is still possible to make changes. To make changes, you must file a new Form 709 and fill out the supplemental information on the first page of the form. Along with the new return, you should provide supporting documentation regarding the changes and a copy of the original Form 709 you previously filed.
What is the difference between the estate tax and the inheritance tax?
The difference between the estate tax and the inheritance tax is that the estate tax is paid by the estate, while the inheritance tax is paid by the beneficiaries receiving the inheritance. Additionally, the estate tax is paid before the estate is distributed to the beneficiaries.
Does the gift tax limit the number of people I can give monetary gifts to?
No, the gift tax does not limit the number of people you can give monetary gifts to. You can give gifts to an unlimited number of individuals. The limit applies to the amount you give to each person per year. If a gift to any one person exceeds the annual gift tax exclusion, you may need to file a gift tax return, and the excess amount typically counts toward your lifetime gift and estate tax exemption.