If a bank or brokerage sent you a Form 1099 that includes money belonging to someone else, here is how to report nominee income: issue a new 1099 of the same type to the real owner, then report the full original amount on your own Schedule B and subtract the other person’s share as a “Nominee Distribution.” That shifts the tax to whoever actually earned the income without leaving a mismatch on your return.
You are a nominee any time a 1099 arrives in your name and under your taxpayer identification number for income that legally belongs to another person. The payer used your information because that is what sits on the account, but the IRS does not know how the money should be split. Unless you redirect it, the agency will treat all of it as yours.1Internal Revenue Service. General Instructions for Certain Information Returns
Situations That Create a Nominee Obligation
The most common case is a joint bank or brokerage account where only one holder’s Social Security number is on file. The bank reports all of the interest or dividends under that one number, even though two people share the earnings. The person named on the 1099 is the nominee for the other person’s share.2Internal Revenue Service. Instructions for Schedule B (Form 1040) – Nominees
Custodial accounts set up under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act work the same way. The custodian, usually a parent, is listed on the account, so the 1099 arrives in the parent’s name. But the investment income legally belongs to the child, and the parent needs to redirect it.
Inherited assets can also trigger nominee reporting. When an estate is being settled, dividends, rent, or interest sometimes flow into the executor’s personal account before being distributed. The executor is a nominee for whatever share belongs to the estate or the beneficiaries.
The Spouse Exception
If the actual owner is your spouse, you do not file a nominee return. The IRS exempts spouses from the process entirely.1Internal Revenue Service. General Instructions for Certain Information Returns Married couples filing separately on a joint account simply each report their own share on their individual returns. Couples filing jointly do not have to think about it at all, since the income lands on the same return no matter whose name is on the 1099.
Step One: Issue a New 1099 to the Actual Owner
Use the same type of 1099 you received. If the original was a 1099-INT for interest, you file a 1099-INT. If it was a 1099-DIV for dividends, you file a 1099-DIV. On the new form, list yourself as the “payer” and the actual owner as the “recipient,” showing only the amount that belongs to them.1Internal Revenue Service. General Instructions for Certain Information Returns
The $10 reporting threshold still applies. For interest, you are only required to file a 1099-INT when the amount you are passing along is $10 or more.3Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID Below that, the actual owner still owes tax on the income; they just will not get a formal 1099 from you.
You must furnish the new 1099 to the actual owner by January 31 of the year following the tax year. Copies filed with the IRS are due February 28 on paper, or March 31 if you file electronically. When February 28 falls on a weekend, the paper deadline shifts to the next business day; for 2026, it moves to March 2.4Internal Revenue Service. 2026 Publication 1099
Paper filers must include Form 1096 as a transmittal cover sheet with each batch of 1099s sent to the IRS, listing yourself as the “Filer.” Electronic filers skip Form 1096 entirely.1Internal Revenue Service. General Instructions for Certain Information Returns
One point to watch: if you are filing 10 or more information returns of any type in a calendar year, the IRS requires electronic filing. The threshold counts across all return types combined. Most individual nominees handling one joint account will not hit it, but an executor sorting out an estate with several beneficiaries and multiple income streams easily can.5Internal Revenue Service. E-file Information Returns
Step Two: Adjust Your Own Return
For interest, report the full amount from the original 1099-INT on Schedule B, Part I, line 1. After your last interest entry, write a subtotal. Below that subtotal, write “Nominee Distribution” and the amount you are passing along. Subtract it from the subtotal, and enter the result on line 2. That net figure is your actual taxable interest.6Internal Revenue Service. Instructions for Schedule B (Form 1040) – Part I Interest
Dividends follow the same pattern on Schedule B, Part II. Report the full amount from the original 1099-DIV on line 5, write a subtotal, write “Nominee Distribution” with the amount passed through, and subtract. The result goes on line 6.7Internal Revenue Service. Instructions for Schedule B (Form 1040) – Part II Ordinary Dividends
For other income types, such as rent or royalties reported on Schedule E, the same principle applies: report the full amount, then subtract the nominee’s portion.
Reporting the full amount first and then subtracting matters because the IRS already has a copy of the original 1099. Leaving the nominee portion off entirely creates a mismatch, and the matching system will send you a notice. Showing the full figure and then the subtraction demonstrates where the money went.
When the Actual Owner Is a Foreign Person
Different rules apply when the income belongs to a nonresident alien or foreign entity. Instead of a standard 1099, the nominee may need to file Form 1042-S, which reports U.S.-source income paid to foreign persons.8Internal Revenue Service. About Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding The nominee is also treated as a withholding agent, which can mean withholding tax on the payment before passing it to the foreign owner.9Internal Revenue Service. Instructions for Form 1042-S (2026) Withholding rates and reporting depend on the type of income and any applicable tax treaty. Anyone in this situation should review IRS Publication 515 or consult a tax professional before filing.
What It Costs to Skip the Process
Missing the filing triggers IRS penalties for each 1099 you fail to file with the agency and each payee statement you fail to furnish to the actual owner. These apply separately, so one missed 1099 can produce two penalties.10Internal Revenue Service. Information Return Penalties The amount depends on how late you are:
- Up to 30 days late: $60 per form.
- 31 days late through August 1: $130 per form.
- After August 1 or never filed: $340 per form.
- Intentional disregard: $680 per form, with no maximum cap.
There is also the practical cost. If you never subtract the nominee distribution and never file the correcting 1099, the IRS treats all of the original income as yours. A CP2000 notice follows, proposing additional tax, and sorting it out after the fact takes considerably more effort than filing correctly the first time.