If a person direct deposits their income into their relative's account, would the IRS or their relative's bank say anything?

If a person asks their employer to direct deposit their income into their relative's account, would the IRS or their relative's bank say anything? Assume they still leave enough money in their own bank to pay their taxes.

My wife's paycheck is direct-deposited into an account with my name on it. Has worked fine for decades.

3 Answers 3

Lets us start with the assumption that you can get the system to do this. You would have to supply your employer with the proper paperwork. If the name on the account doesn't match, we will assume that this can be solved.

The IRS wouldn't care. The pay is connected to the employees social security number. That is how the employer will notify the IRS via the W-2. The intermediate and final destination of the funds don't change the state, local, or federal taxes.

The bank will accept the funds and place them into the specified account, as long as information matches.

One additional thing:

Assume they still leave enough money in their own bank to pay their taxes.

If you are an employee, the employer withholds various "taxes" and the employees portion of benefits like health insurance, before the money is sent to a financial institutional. This is normally called your net pay. In April each year you file a income tax return where you calculate if you are due a refund, or owe additional taxes.

If you are a contractor then the company doesn't withhold any money for taxes, and you generally don't get any benefits. Moving most or all of the paycheck into an account you don't control could make paying a quarterly or annual tax to the state and federal government much more complex.

@littleadv and then presumably you can show it is a gift or not a gift, and if you can't show either, the balance of probabilities applies

Short answer: No, no one will care.

The IRS has no reason to care. All they care about is how much tax you owe. And how much tax you owe depends on your income and deductions, not on which account money was deposited to. Well, let me qualify that. If you have your paycheck deposited to, say, your parents' account, and then you ask your parents to donate $50 to charity for you, that deduction will be in their name, not yours, and you'd likely have a hard time justifying it to the IRS. So there could be INDIRECT issues in justifying deductions. But ignoring that, the IRS does not go by the amount of money that shows up in your bank account. They go by the amount that your employer reports to them on your W-2.

Maybe, possibly, the bank would question why your pay check is being direct deposited to an account that has a different name on it than yours. If that's a problem, it could be easily solved by having your name added to the account. Lots of married couples, for example, have joint accounts to which both people have their paychecks direct deposited. Sometimes they have the same last name and sometimes not. I've never heard of this being a problem.

Your employer should have little reason to care. When you fill out the paperwork for the direct deposit, you give this account number, and that's where the money goes.

You said, "Assume they still leave enough money in their own account to pay taxes." That brings up a possible technicality. If you're saying that you want part of your paycheck to go to your own account and part to this relative's account, your employer's system may not be set up to split the deposit between two accounts.

Really, the only potential problem I see is that when you set this up, your employer and the bank have to verify that this is indeed a real and valid account. I don't know exactly what goes into this verification. If they check that the name on the account matches the name of the payee, there would be an issue. I doubt they do, or if they do there are exceptions, because I've set up business accounts where the business name is not the same as my name. But maybe that's a known special case.

The easy thing to do would be to ask your employer and the bank if this would be a problem. Even if most banks would have no problem with it, maybe your particular bank does for some reason.