I sold ESPP stock as a Qualifying Distribution under a qualified plan with a lookback provision and 15% discount. The ordinary income amount was reported on my W-2, but is different than what TurboTax calculates.
From what I always understood, Ordinary Income for a Qualifying Distribution is calculated as (a) the FMV on the grant date x discount x number of shares (let's just assume that the sale price is much higher than the purchase price, so calculation (a) is lower). That seems to be how TurboTax is calculating it.
However, the amount on my W-2 appears to be calculated as (b) [the FMV on the grant date - Purchase price] x number of shares. With the lookback provision, as long as the FMV increases from the grant date to the exercise date, calculations (a) and (b) result in the same amount. However, in my case, the FMV decreased and the purchase price was based on the FMV on the exercise date.
For example:
FMV on grant date: $100
FMV on exercise date: $90
Discount: 15%
Purchase price: $76.50 ($90 less 15%)
(a): Ordinary Income = $15/share
(b): Ordinary Income = $23.50/share
I assumed that the amount shown on my W-2 was incorrect, but when I check the IRS guidelines for this calculation, I am not sure. From irs.gov: "You report as ordinary income (wages) on line 1 of Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors the lesser of (1) the amount by which the stock's FMV on the date of grant exceeds the option price or (2) the amount by which the stock's FMV on the date of sale or other disposition exceeds the purchase price."
Option (1) in that statement seems to match the calculation (b). Is it possible that TurboTax is calculating ordinary income incorrectly?
