Interest on UK joint bank account

In the States, a joint bank account has a primary and secondary account holder. The account uses the social security number of the primary account holder, and that person reports the income to the IRS and pays taxes on the full amount of the interest when they file their taxes. The secondary account holder is not liable for any taxes and does nothing.

I now have a joint current account with my British husband in a UK bank.  Tax (going to HMRC) is automatically deducted from interest before interest is paid. How do I report this to the IRS as unearned income?  Do I divide the interest by 2 (1/2 for me and 1/2 for my husband?).  He is a British citizen with no ties to the US, and does not pay US taxes. I file US taxes as married filing separately, listing my husband as a non-resident alien.

I don't necessarily agree with you on the US tax answer since that depends also on State law (i.e. whether you live in a community property State).

From a US tax perspective most folks report 50% of interest from a joint UK bank account on their US tax returns and disclose the account on the foot of Schedule B and on Form TDF 90-22.1 if applicable.

I live in New York State. I have been both a primary and a secondary account holder on joint accounts in New York. In all cases, the account has only one SS number associated with it- that of the primary account holder. The primary account holder reports 100% of the interest and pays 100% of the tax on the interest. When I was the primary account holder, I paid 100% of the tax on  interest, when I was the secondary account holder, I didn't report any taxes at all. The 1099 form from the bank is always made out to the primary account holder - it has to be; the bank has no record of the secondary account holder's SS no.

I think I will report 50% of the interest, as you suggested. Thanks.

The IRS view can be found here: http://www.irs.gov/taxtopics/tc403.html

Actually, it's a bit more complicated, as both of you are 100% right, for different reasons.  The US govt uses a 1099 matching system, so the numbers  on your return must match what was reported.  Thus you are right.  Yet, you only *owe* tax on your 1/2, so Guya's right too.

For US accounts on a US tax return:

1)  Report the full amount on your US tax return.  This is because the US govt links the numbers from the 1099 to your US tax return, and the numbers must match.
2)  If the amount is substantial, you report a nominee distribution to the second person.  That's a pain in the neck, but worth it for large sums.  Net tax effect is tax on 1/2 the income to you, and 1/2 the income to the second person.

For UK accounts on a US tax return:
3)  Just report your 1/2, as it wasn't reported to the US govt on a 1099.

For US accounts on a UK tax return:
4)  Just report your 1/2.

For UK accounts on a UK tax return:
5)  Just report your 1/2.  You can add an explanatory note stating that the account is a joint account which earned £XX, of which 1/2 was yours.