If a Bank Account is Owned by 2 Unmarried Adults, How Does the IRS Decide Who Pays Taxes on Interest Income?

Question

Can the adults split the responsibility any way that they want to? Or must it be split 50% - 50%?

Won't the bank issue a 1099-INT that only has one adult's name on it?

Answer 1

What you are talking about is called nominee interest. The person who gets the 1099-INT will fill out schedule B listing the total interest received on the account. If they receive more than 1 1099-INT they will list all interest on schedule B. After all interest has been listed they will write nominee interest, list the other owners name and SSN and a negative amount to subtract from the total interest received. This then carries over to line 8 on form 1040

Answer 2

Unless there is an audit, the IRS will default to expecting the interest to be paid by the SSN listed on the 1099-INT.

In the event of an audit, the IRS will look to see who contributed the money that made up the account. That is the person who made the interest and it's their responsibility to pay the tax.

Consequently, care should be taken when opening a joint account when the parties aren't married to each other (such as elderly parent with adult child). If one person contributes all the funds, that person's SSN should be on the account. If the funds are owned 50-50, the person who receives the 1099-INT should issue their own 1099-INT to the other person to show that half of the interest belongs to them.

Answer 3

The 1099-INT is issued to whoever's SS# was put on the W-9, which should be whoever is listed first (unless you filled out the W-9 wrong).

The interest is taxable income of the person who actually owns the money in the account. This may or may not be the same person. For example, if you open an account with your money in the name of a baby, in order to avoid paying taxes on the interest, but still own the money in the account, then the baby's name will be on the 1099, but you must pay the tax, unless state law dictates that the money in the account became the baby's legal property when you deposited it.

Answer 4

The bank will issue a 1099-int to the person whose social security number is on the account. That person can just claim all of the interest, or you can split it. Splitting it will take extra paperwork.

Answer 5

Although only one SSN will be on the Form 1099-INT that you receive, you can split the interest income. You both need to attach statements to your tax return referencing the other person by name and SSN and explaining how you divided the interest income. A joint account is equally owned regardless of who deposited what to the account so if you split the interest you'll split it 50-50.

Answer 6

It usually falls on the person who is listed first on the account, unless otherwise stated. If you call your bank, they will be able to tell you. Both SSN will be associated with the account, but only one person will be responsible for the taxes. It's actually set up like that even when the account holders are married. The form that the bank sends you will probably have both names on it and look much like a monthly statement. It's usually computer generated and the computer won't decipher who is responsible for the taxes.

Answer 7

I say they will go after the person whose name is on the account first, unless it's an "OR" account. I would just call the bank and either make the arrangements with them. The 1099-INT will be sent to the address on the account and then one of you could decide who will do the claiming.

Answer 8

There is no limit to the amount of money that you can have in a bank account without paying tax on it. However, if the bank pays you interest, then you must pay taxes on the interest. You are required to pay tax on all money that you receive "from under the table transactions", whether or not you put it in the bank. Putting it in the bank does not affect whether you must pay tax on it.

Answer 9

There is one SSN associated with the account. That person will pay the tax.