Paying Tuition or Medical Bills Directly
The granddaughter's tuition bill came last month, and Ida would like to help.
Picture a woman named Ida, 71. She lives abroad and has a granddaughter at a university in the United States. The granddaughter's tuition bill came last month, and Ida would like to help.
Ida already knew about the yearly gift amount of US$19,000 per person. She wondered if the tuition would eat into it. She wrote to her accountant, who works with Americans abroad. While she waited, she read the Internal Revenue Service instructions for the gift tax return.
She found a separate rule. In the instructions for Form 709, the gift tax return, the Internal Revenue Service lists tuition and medical payments among the transfers that are not subject to the gift tax. The conditions are specific.
| Tuition | Medical care | |
|---|---|---|
| Who gets the payment | The school, directly | The doctor, hospital or other care provider |
| What it covers | Tuition at a qualifying school, in the United States or abroad | Diagnosis, treatment and prevention of disease, and medical insurance premiums |
| What it leaves out | Books, supplies, room and board | Care that the person's own insurance paid back |
| Does it depend on the family tie | No | No |
| Is a return needed for it | No | No |
The same page says payments for other things are treated as gifts to the person, and the yearly amount may cover them if it applies. The instructions we read set no dollar limit on these two kinds of payment.
Ida called her granddaughter that evening.
"Grandma, you can just send me the money," her granddaughter said.
"I could," Ida said. "I read that if I pay the school myself, it is treated differently from sending it to you. I would like to do it the way the page describes."
"Okay. I will send you the invoice."
"And the rent?"
"The rent is separate," her granddaughter said, and laughed.
Ida smiled. The rent would be a gift to her granddaughter, a different kind of payment, and she could count it against the yearly amount if she wished. She wrote both lines on her pad and sent the pad to her accountant with a question: is this school one that qualifies?
You could…
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Ask the school's billing office where payments from family should be sent, and what name goes on the payment.
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Ask the clinic or hospital for an invoice that names the patient and the care provided.
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Keep a copy of each invoice and each payment record for your accountant.
Have you paid a school or a hospital for someone you love? Share what you learned here. Someone reading may be holding a bill and wondering how.
Figures are estimates for planning, based on public data. Source: Internal Revenue Service, Instructions for Form 709 (educational and medical exclusions).
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