@Tj2008 , what I understand of the situation is that your employer essentially treated the exercise as a bonus / commission / pay-in-kind and withheld taxes . In my view this would still be treated as an addition to wages i.e. this income is caused by your employment and not a gift or other income. This implies the taxes withheld should include Federal + State + FICA. If that interpretation is true, then :
(a) you enter this X ( the FMV / exercise price of the stocks ) as an addition to your W-2 box 1, Box-3 and Box5 plus State earnings Box and (with clarification from the employer ), add the taxes collected into Boxes 2, 4, 6 and into State Taxes collected box.
(b) TurboTax would then compute correctly any taxes due for all the different withholdings.
You would need to keep record of the FMV/ exercise price of the stocks as your basis for the future disposition and capital gain computation.
Does this make sense ?
