What is a Joint Account Tax?

Charity Delich
Charity Delich
Before opening a joint account, both owners need to understand how the account affects each person's tax liability.
Before opening a joint account, both owners need to understand how the account affects each person's tax liability.

A joint account tax is a type of tax assessed on income realized from a financial account that is owned by two or more individuals. For example, if interest is earned on a joint savings account, that joint account interest is usually subject to joint account tax. The account owners are liable for paying the tax. A joint savings account and a joint interest-bearing checking account are two types of accounts that often lead to joint account tax.

A joint checking account may incur joint account tax.
A joint checking account may incur joint account tax.

Generally, a joint account allows all owners to have full access to the account. As co-owners, they can perform a number of tasks in relation to the account, such as writing checks, making deposits, and withdrawing money. Married couples often open joint accounts. Senior citizens sometimes open up a joint account with another party, such as a child, caretaker or close relative. This allows the money to remain in the senior citizen’s name while allowing the co-owner to pay the senior citizen’s bills from the account or to write checks on the senior citizen's behalf.

Some senior citizens open a joint account with a child or other close relative.
Some senior citizens open a joint account with a child or other close relative.

In theory, account owners equally split any taxes levied on joint account income. In practice, however, the financial institution that issued the account often sends the joint account tax statement to the primary account holder. Typically, this is the individual who has listed his or her taxpayer identification number on the account. If the primary account owner wishes to share the income with the secondary owner for tax purposes, he or she may be required to file additional tax forms with the appropriate government revenue agency.

Joint accounts can offer tax advantages in the event that one of the account owners dies.
Joint accounts can offer tax advantages in the event that one of the account owners dies.

Before opening a joint account, individuals need to analyze how joint account tax may impact their overall tax liabilities. Tax implications are not always favorable for joint account holders, and maintaining separate accounts can sometimes result in less total tax liability. For example, if one account owner pays a higher rate of taxes than the other account owner, the parties may realize an overall greater tax liability on the account than if the account was held only in one person’s name.

Joint accounts can offer tax advantages in the event one of the account owners dies. Joint account law generally allows a surviving account owner to immediately receive sole access to any remaining funds in the joint account. This avoids joint account probate because the account automatically becomes the sole property of the surviving owner. Once the surviving owner takes sole ownership, he or she is responsible for paying any income taxes associated with the account. In addition to being entitled to the remaining account balance, the remaining owner is also responsible for any debt associated with the account.

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    • Before opening a joint account, both owners need to understand how the account affects each person's tax liability.
      By: Kurhan
      Before opening a joint account, both owners need to understand how the account affects each person's tax liability.
    • A joint checking account may incur joint account tax.
      By: JohnKwan
      A joint checking account may incur joint account tax.
    • Some senior citizens open a joint account with a child or other close relative.
      By: Monkey Business
      Some senior citizens open a joint account with a child or other close relative.
    • Joint accounts can offer tax advantages in the event that one of the account owners dies.
      By: mast3r
      Joint accounts can offer tax advantages in the event that one of the account owners dies.