I e-filed my tax return last Saturday night only to check my mail box on Sunday and find an interest earnings tax form (1099-INT) from one of my joint account with my fiancee that I totally forgot about. So, I quickly went on Google and researched on the topic and learned a couple things about joint accounts and taxes.
Filed Under the Primary Account Holder
Since this is a joint account, I immediately thought about whether I could’ve just filed everything until the other person (my fiancee) as I haven’t filed hers yet. After searching the web, I find out that joint accounts are usually filed under the primary account holder and need to be filed under that person. Of course, I never knew who the primary account holder was but the way to check is to see who’s SSN is on the tax form. The other way to check is to see who’s name appear first on the tax form since both names will appear on the 1099-INT. Unfortunately for me, my name was on the tax form first so I will have to file.
Spliting the Interest Earnings
For most people, the more important question about joint accounts is to see how we should split the interest earnings. Generally, you are supposed to split the earnings 50/50 (for obvious reasons). If you want to split it according to another percentage mix, you should have some sort of proof that it is an appropriate split (you cannot just split it according to whatever gives you the best tax benefit.)
After the split mix is determined, everyone on the joint account that shares the interest expense is required to file a tax return under Schedule B of Form 1040.
Receiving the Tax Form
It is not required by the banks to mail a copy of the 1099 to every account holder. In my case, only the primary account holder (me) received the tax form.
Therefore if the joint account is really funded by one person, then that person should be the primary account holder. That way, the funder can file all the interest earnings under his/her name without everyone else on the account doing anything else. Otherwise, there’s just going to be extra paperwork because the primary account holder will always have to be involved in the filing (and most likely the person that will receive the tax form).
So, take some time to think about all the tax implications before you open another join account again!
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{ 4 comments… read them below or add one }
An early bird filer I see…well I’m trying to delay the inevitable until the last moment. I changed my allowances throughout the year to ensure I would break even, and sure enough I did. I don’t plan on receiving a refund check this year so I intend to wait until the very last moment to file!
It’s definitely something to consider when opening any new account. We need to always consider tax implications.
I’ll probably be filing soon, but I’m not in any hurry really at this point.
Interesting post, I’ll keep this in mind.
-Mike
Changing your tax filing so you break even is very smart. I’m always amazed at how many people take the max filing and then act like Uncle Sam is giving them money back at the end of the year! Hey, you just loaned Uncle Sam you hard earned money all year long…interest free…and now you’re happy about that?!