There is an annual exclusion, and a lifetime exclusion. The best way this was described to me by a trust and estates colleague is to think of it as two buckets. The annual exclusion is a “small” bucket of $16,000. But if you over fill that bucket one year, the overflow goes into the bigger lifetime exclusion bucket of $12.06 million. So if you give someone $30,000 in 2022 - $16,000 goes in your little bucket, and $14,000 into the big bucket. In 2023, your little bucket (the annual exemption) will be empty and ready to go again, but your big bucket will keep the $14,000 and have that much less room.
So this really only affects someone who plans to give more than $12.06 million over their lifetime, and is aimed at the person giving the gift to prevent people from evading the estate tax by giving away millions and millions of dollars before they die. (Without the gift tax, for example, someone with a $50 mil estate who has two children named in his/her will could just give each child $25 mil on his/her death bed, and then avoid the estate tax altogether).
