Nominee Interest
If two or more people are listed as owners on a bank account
or another type of investment account, the associated 1099-INT form
(reporting interest income on the investment) will generally be sent
to the person whose Social Security number is listed first on the
account. The bank will report to the IRS that all income on the account
was paid to that person. However, tax on the income should actually
be split among all owners of the account, according to their proportionate
ownership interest (which is determined under state law, but generally
reflects the proportions that each person originally contributed to
the account).
If you received a 1099-INT form that includes
interest that is actually owed to someone else (for example, another
joint owner of the account who is not your spouse), you can avoid
tax on the full amount if you give the actual owner a Form 1099-INT
by the end of January, and file a copy of this form with the IRS along
with IRS Form 1096, Annual Summary and Transmittal of U.S. Information
Returns, by the end of February.
In that case, you would
report on Line 1 of Schedule B the full amount shown on the 1099-INT
you received; after you list all your taxable interest items, subtract
the amount of interest you reported to the other owners and label
it "nominee distribution." Then show the result (total interest minus
nominee distribution) on Line 2.
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