Joint bank accounts make life easier for couples living together, as well as for adults helping parents with aging bills. When two people have an account together, they will owe taxes on the interest they earn throughout the year. The taxes each person will pay will be in proportion to their share of ownership of the account. If they're 50/50 owners, for instance, they'll each be responsible for half. It is generally a simple matter of prorating the income based upon each joint owner's percentage of the total account, and the signature card you have on file at your financial institution will show what that breakdown is.
Both owners generally will pay taxes on a joint bank account, and the amount due for each owner depends on the person's share of ownership of the account. However, it is possible for just one owner to opt to pay the entire tax.
Every bank account requires a Social Security number (SSN). Financial institutions by law must report income generated by each account to the IRS. The recipient of the income is identified by his Social Security number. The IRS checks the recipient's tax return to make sure he reported the income attached to his SSN.
The proper IRS form for reporting interest income earned by a joint account is Form 1099. Joint accounts present a problem for the preparer of the form, since only one person and one SSN can be shown. That person is generally the first person listed on the joint account. All of the income is reported to the IRS for that one joint owner.
The joint owner whose SSN was listed on the 1099 has to report all the income on his tax return. He must then deduct the shares of the other joint owners and make a note on the tax return. The note lists the other joint owners, their respective shares and their Social Security numbers, and it states that they will be reporting their share of the income on their tax returns. The recipient of the 1099 needs to send a copy to all joint owners, along with a breakdown of the income for each owner.
Tax Reporting Options
The IRS won't know the breakdown of ownership of an account unless it is reported. All it knows is the amount of income and the name and Social Security number of the person on the 1099. If the joint owners are close family members, they may choose to report all of the income on the return of the 1099 recipient. Breaking down the total, especially if it is not too large, and making notes about other owners on returns may prove to be impractical and more trouble than it is worth.
- IRS: Publication 17 (2017), Your Federal Income Tax
- Bankrate: Risks of Joint Bank Accounts
- Hacker Accounting: How a Joint Bank Account Could Affect Your Taxes
- Consumer Financial Protection Bureau. "I Have a Joint Checking Account. The Other Person Closed the Account Without Telling Me. Is That Allowed?" Accessed Feb. 26, 2020.
- Consumer Financial Protection Bureau. "I Have a Joint Account With Someone Who Died. What Happens Now?" Accessed Feb. 26, 2020.
- Nolo. "Bank Levies on Joint Accounts (Spouse)." Accessed Feb. 26, 2020.
Robert Alley has been a freelance writer since 2008. He has covered a variety of subjects, including science and sports, for various websites. He has a Bachelor of Arts in economics from North Carolina State University and a Juris Doctor from the University of South Carolina.