Nominee Interest

AAA

DEFINITION of 'Nominee Interest'

An interest payment that a person receives on behalf of someone else. If you receive nominee interest, also called a nominee distribution, you are responsible for paying income tax on it, unless you pass the interest on to its rightful owner. You must notify the IRS of the transfer in order to remove your obligation to pay taxes on the entire amount of interest. The recipient of nominee interest should use IRS form 1099-INT to notify both the IRS and the interest recipient that the interest income has been transferred. The nominee then adjusts his or her taxable income downward by the amount of the transferred interest, which he or she reports on Schedule B. The recipient pays the tax on the interest he or she received.

INVESTOPEDIA EXPLAINS 'Nominee Interest'

Such a situation might arise if a sister and brother opened a savings account together. Because the sister is listed first on the account, the bank reports to the IRS that she received the full amount of interest. Since she actually shared the interest with her brother, she must file form 1099-INT, so that the IRS will only hold her responsible for the portion of the interest she actually kept. Her brother will receive a copy of the 1099-INT indicating which portion of the interest he received and is responsible for paying tax on.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Nominee Distribution

    Interest income reported on IRS Form 1099-INT that a taxpayer ...
  3. Form 1099-INT

    The form issued by all payers of interest income to investors ...
  4. Nominee Dividend

    A dividend that a person receives on behalf of someone else. ...
  5. Interest

    1. The charge for the privilege of borrowing money, typically ...
  6. Quid Pro Quo Contribution

    A charitable donation for which the donor receives something ...
RELATED FAQS
  1. What is the difference between federal and state withholding tax?

    You can file your federal taxes by yourself by downloading and printing the forms off the Internal Revenue Service, or IRS, ... Read Full Answer >>
  2. What is an adjusted cost basis and how is it calculated?

    The cost basis of an investment or asset is an important consideration in tax planning for individual investors, business ... Read Full Answer >>
  3. What are some ways to minimize tax liability?

    Minimizing tax liability is one of the most important financial planning aspects for business owners and individuals each ... Read Full Answer >>
  4. Can the government tax your capital gains from other countries?

    Income earned by U.S. citizens is subject to taxation by the IRS regardless of where it was generated. The government of ... Read Full Answer >>
  5. Can you realize capital gains on intangible property?

    Capital gains may be realized on some forms of intangible property. Intangible assets range from patents and licenses to ... Read Full Answer >>
  6. How does an entrepreneur pay taxes?

    In the United States, tax policy neither officially defines nor makes special rules for entrepreneurs. Certain types of entrepreneurial ... Read Full Answer >>
Related Articles
  1. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  2. Retirement

    Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.
  3. Options & Futures

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  4. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  5. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  6. Taxes

    Top Tax Issues For High-Net-Worth Individuals

    Wealth brings benefits, but from a tax perspective it creates special challenges. Here are some tax issues to pay attention to.
  7. Professionals

    5 Estate Planning Must-Dos Before Saying "I Do"

    There are many exciting things to look forward to when a couple gets married; not among them is putting financial affairs in order. Advisors can help.
  8. Professionals

    Why Doing Your Taxes is Good Retirement Planning

    Income tax time is a great time to reevaluate retirement planning, since all the information you need is right at your fingertips.
  9. Economics

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.
  10. Professionals

    New Tax Pitfalls to Avoid

    Although the normal litany of adjustments have been made to the tax code, there are several more unique issues that taxpayers must contend with.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center