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From the team at myStockOptions. We do our best to keep the writing lively. The end of January is nigh. Along with snowflakes, important tax-return documents are in the air—or rather, hopefully either in your safe possession or on their way to you. When you have stock compensation, tax-return documents and the information they contain can be confusing and hard to decipher. This blog commentary provides an overview of the reporting you need to understand.
If you sold stock in , by the middle of February you will receive forms from your broker reporting the sales. Employees who had income from stock compensation or an employee stock purchase plan in must understand where that income is reported on Form W-2 so that they can complete their tax returns properly. Each one includes an annotated diagram of Form W-2 that clearly interprets this sometimes cryptic document. The vesting of restricted stock, the share delivery from restricted stock units RSUs , and the vesting of performance shares all prompt W-2 reporting of the income received.
The treatment on the W-2 is essentially the same for all three grant types, assuming there is no election to defer share delivery. To learn which boxes show the taxes withheld, and other reporting details for all three grant types, see the related FAQs , including annotated diagrams, in the Tax Center. If you exercised nonqualified stock options last year, the income you recognized at exercise will be reported on your W The W-2 reporting is, by the way, identical for stock appreciation rights , with the exception that Code V is not used.
With incentive stock options , the spread value appears on the W-2 only when you make what is technically called a disqualifying disposition , i. In that case, the income appears on the W-2 as compensation income. Unlike with NQSOs, your company does not withhold federal taxes on ISO exercises and no money is owed for Social Security and Medicare, even with a same-day sale or any later disqualifying dispositions.
For a nonqualified ESPP, there is withholding on the income you recognize at purchase, and the income and withholding are reported on your W-2 in a way resembling that for nonqualified stock options.
Form W-2 is not the only important piece of tax paperwork that companies are sending these days. In , did you buy shares in your company's employee stock purchase plan ESPP?
Did you exercise incentive stock options ISOs? Companies must issue these forms to employees by the end of January, and they must also file them with the IRS though the IRS filing need not occur until the end of March if it is electronic. For employees, many companies issue the information on their own substitute statements instead of using the actual IRS forms. A substitute statement allows a company to aggregate all purchases or exercises in one form rather than issuing a separate IRS form for each transaction.
While Forms and may seem confusing at first glance, they are useful because they can help you gather information you will need to prepare your tax return. As the forms also ensure that the IRS has ample information about your ESPP purchases and ISO exercises, they mean that accurate and timely tax-return reporting is more important than ever. To help companies and participants understand these forms and the related tax rules, myStockOptions. These include annotated examples of the forms that translate IRS jargon into understandable language.
Each ISO exercise is reported on a separate Form , which shows the following details:. If you sold shares from stock compensation or an ESPP last year, you will need guidance to report the sale proceeds on your tax return.
Failing to report gains, or doing so incorrectly, is a costly error. Fortunately, the Tax Center at myStockOptions. Each FAQ in the section includes annotated diagrams of Form and Schedule D, the two crucial forms for stock-sale reporting. All of our tax-season content, including our popular annotated tax forms, is available for corporate licensing.
Help your participants make the most of their stock compensation by giving them resources for avoiding expensive mistakes on tax returns. The excellence of our resources is attested by the many testimonials we have received, so don't just take our word for it.
As one of our licensees puts it, employees "find the tax information and annotated tax forms extremely helpful. Please contact us for licensing details or info mystockoptions. Digg This Save to del. You can follow this conversation by subscribing to the comment feed for this post. The letters and numbers you entered did not match the image.
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Making Sense Of Form W-2 When Stock Compensation Is Reported Employees who had income from stock compensation or an employee stock purchase plan in must understand where that income is reported on Form W-2 so that they can complete their tax returns properly. Restricted Stock, RSUs, Performance Shares The vesting of restricted stock, the share delivery from restricted stock units RSUs , and the vesting of performance shares all prompt W-2 reporting of the income received.
Wages, tips, and other compensation Box 3: Social Security wages to income ceiling Box 5: Medicare wages and tips Box State wages, tips, etc. Local wages, tips, etc. If you made a Section 83 b election to be taxed on the value of restricted stock at grant, your W-2 for the year of grant, not vesting, will show the income and withholding.
Stock Options If you exercised nonqualified stock options last year, the income you recognized at exercise will be reported on your W Social Security wages up to the income ceiling Box 5: Last year, the amount of the IRS penalty doubled for companies that file information returns late or fail to distribute the employee statements.
Annotated Diagrams Of Forms And To help companies and participants understand these forms and the related tax rules, myStockOptions. Resources For Stock Plan Participants And Companies All of our tax-season content, including our popular annotated tax forms, is available for corporate licensing. Comments You can follow this conversation by subscribing to the comment feed for this post. Verify your Comment Previewing your Comment. This is only a preview. Your comment has not yet been posted.
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