No, the capital gain amount would not be included in box 1 on the W-2. In fact, the capital gain or capital loss, if any, would not be included anywhere on the W-2. The capital gain/loss amounts need to be calculated by the taxpayer.
Here are two examples of qualified dispositions involving ESPP both of which were taken from the Treasury Regulations that relate to ESPPs. These examples may be helpful as you work through this part of your tax return. On a going forward basis, if you know the information as expressed in the following examples, you can avoid the TurboTax screens that specifically relate to ESPPs (or RSUs) and enter your ESPP information as if it were a regular stock transaction.
Example 1
On June 1, 2010, Corporation GG grants to Employee P, an employee of GG, an option under GG's employee stock purchase plan to purchase a share of GG stock for $85. The fair market value of GG stock on such date is $100 per share. On June 1, 2011, P exercises the option and on that date GG transfers the share of stock to P. On January 1, 2013, P sells the share for $150, its fair market value on that date. P's income tax return is filed on the basis of the calendar year. The income tax consequences to P are as follows -
(i) Compensation in the amount of $15 is includible in P's gross income for the year 2013, the year of the disposition of the share. The $15 represents the difference between the option price ($85) and the fair market value of the share on the date the option was granted ($100), because the value is less than the fair market value of the share on the date of disposition ($150). For the purpose of computing P's gain or loss on the sale of the share, P's cost basis of $85 is increased by $15, the amount includible in P's gross income as compensation. Thus, P's basis for the share is $100. Because the share was sold for $150, P realizes a gain of $50, which is treated as long-term capital gain.
Example 2
Assume the same facts as in Example 1, except that P sells the share of GG stock on January 1, 2014, for $75, its fair market value on that date. Because $75 is less than the option price ($85), no amount in respect of the sale is includible as compensation in P's gross income for the year 2014. P's basis for determining gain or loss on the sale is $85. Because P sold the share for $75, P realized a loss of $10 on the sale that is treated as a long-term capital loss.
Under a nonqualified disposition, when the shares are purchased, the excess of the fair market value of the shares at the time of purchase over the purchase price (the spread) is taxed as ordinary income. Any additional gain or loss when the employee sells the shares is taxed as capital gain or loss.
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