Joint Bank Account Taxes When Not Married: What You Need to Know
Understand how taxes apply to joint bank accounts when you're not married, including interest reporting, ownership shares, and proper documentation.
Sharing a joint bank account without being married can complicate tax reporting. The IRS assumes equal ownership among account holders, meaning you may owe taxes on interest income even if contributions were unequal. Properly reporting interest and claiming deductions is essential to avoid unnecessary tax liabilities or audits.
Differentiating Ownership Shares
Determining ownership in a shared bank account can be challenging. Banks do not track individual contributions, so ownership is often dictated by state laws and the account agreement rather than actual deposits. Some states assume equal ownership, while others allow account holders to prove a different split using financial records.
State laws play a key role in ownership rights. In common law states, joint account holders have equal access to funds, but ownership may be based on contributions. Community property states, such as California and Texas, often treat funds as jointly owned if acquired while the couple lived together, even if only one person made deposits.
Bank account agreements also influence ownership. Some accounts are structured as joint tenancy with rights of survivorship (JTWROS), meaning both parties have equal ownership, and the surviving account holder inherits the funds. Others may be set up as tenants in common, where each person owns a specific percentage that can be passed to heirs. These distinctions affect tax reporting, estate planning, and creditor claims.
Form 1099-INT Considerations
Banks issue Form 1099-INT when an account earns $10 or more in interest during a tax year. The IRS requires banks to assign this income to the primary account holder, meaning the person listed first on the account typically receives the form. However, this designation does not necessarily reflect actual ownership, which can create complications when multiple people share an account.
If the interest income does not belong entirely to the recipient of the 1099-INT, they must allocate the appropriate portion to the other account holder. Since banks do not handle this division, account holders must ensure accuracy. In some cases, one party may need to issue a Form 1099-INT to the other to document the correct distribution of interest income. The IRS provides templates for this purpose, and failing to issue one when necessary could result in misreporting and penalties.
If the total interest is significant, the IRS may scrutinize discrepancies between reported amounts. Taxpayers who frequently split interest income should maintain records of deposits, withdrawals, and agreements regarding fund ownership to substantiate their reporting.
Reporting Interest on Individual Returns
Each account holder must report their respective share of interest income on their tax return. The IRS does not receive details on how joint account holders divide funds, so individuals must determine an accurate allocation based on actual financial contributions. Misreporting could trigger an audit if discrepancies arise between reported amounts and financial records.
Interest income is reported on Schedule B (Form 1040), which requires listing the financial institution that paid the interest and the total amount received. If an individual was issued a 1099-INT for the full amount but is only responsible for a portion, they must report the entire amount on Schedule B and then deduct the portion belonging to the other account holder. This is typically done by listing the other person’s name and Social Security number along with the amount transferred.
If one account holder does not meet the IRS filing threshold, the responsibility for reporting the interest may fall entirely on the other person. Keeping clear records of financial contributions and any written agreements regarding income division can help prevent issues.
Handling Withholding and Credits
When interest income is subject to backup withholding, the IRS requires banks to withhold 24% of the earnings before distributing them. This typically occurs when a taxpayer fails to provide a correct Social Security number or has a history of underreporting income. If a joint account is subject to withholding, the withheld amount is credited to the primary account holder listed by the bank, regardless of actual ownership proportions.
To claim withheld amounts correctly, the individual who received the Form 1099-INT must report the total withholding on their tax return, even if they are not responsible for all of the interest income. If the withholding was applied to interest that belongs to another account holder, adjustments may be necessary to prevent one person from claiming excess credits while the other underreports. The IRS does not automatically redistribute withheld amounts between account holders, so coordination is required to ensure each person is credited fairly.
Documentation for Shared Accounts
Maintaining proper documentation is essential when managing a joint bank account, particularly when account holders are not married. Since banks do not track individual contributions or withdrawals, account holders must establish clear records to support their financial claims.
Bank statements should be retained to track deposits and withdrawals, as these records can demonstrate each person’s financial contributions. If one account holder contributes significantly more than the other, maintaining a ledger or spreadsheet detailing each transaction can help clarify ownership percentages. Additionally, written agreements outlining how interest income and tax obligations will be divided can serve as supporting evidence if discrepancies arise.
For large deposits or withdrawals, additional documentation may be necessary to justify the source and purpose of the funds. If one account holder transfers a substantial amount from a separate account, keeping records of the original source can help establish ownership in case of a dispute. Similarly, if funds are used for joint expenses, maintaining receipts and invoices can demonstrate how the money was allocated. Proper documentation simplifies tax reporting and protects account holders in legal or financial disputes.