Which of the following payments is treated as a gift tax-exempt when paid directly to an educational institution?

• A. Excluded from gift tax
• B. Counted as taxable gifts
• C. Deductible on income tax
• D. Not allowed as a transfer

Answer: (A)

Directly paying someone’s tuition to a school is treated as a gift tax-exempt transfer. This special rule exists to encourage education: when you send tuition payments straight to the educational institution for another person, the payment is considered payment for education, not a gift of money to the student. Because of that, it isn’t counted toward gift tax, and no gift tax is due. This exclusion applies only to tuition payments (not room, board, or other expenses), and it isn’t a deduction for income tax purposes. So, the payment is gift tax-exempt.