Who Pays the Tax on a Joint Bank Account?

by Robert Alley
Income earned on a joint account is reported to the IRS based on the owners' Social Security numbers.

The owners of a joint account pay taxes on the income generated in proportion to their ownership share. It is generally a simple matter to prorate the income based upon each joint owner's percentage of the total account. The signature card at the financial institution reflects the breakdown. Potential problems involve reporting requirements and accounting to the Internal Revenue Service.

Account Identification

Every bank account requires a Social Security number, or 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.

Form 1099

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. 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.

Filing Taxes

The joint owner whose SSN was listed on the 1099 has to report all the income of 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 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.

Practical Considerations

The IRS cannot not 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.

About the Author

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.

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