ESPP disqualifying disposition and W2 missing compensation income

[ajabon]

My employer did not report compensation income for ESPP acquired in CY2021 and sold in CY2022.

Going through some old postings I still can't seem to figure out how to manually add the original income. Most posts want you to use form 3922, which I have, and TT always ends up calculating the correct compensation income that should have been added to my W-2 but wasn't.

I could answer no to "was this a sale of employee stock", then TT won't ask me any info on the ESPP portion and the final "Is this income included in wages" number will match my W-2.

Looking for the "best" way to handle this. Should I use TomYoung's suggestion and add "miscellaneous income"? I did step through this but none of the reason codes apply to this situation? The only thing remotely close is "H" but I did not receive 1099-MISC and/or 1099-NEC

https://ttlc.intuit.com/community/taxes/discussion/for-espp-my-w2-includes-income-for-disqualified-d...

[ThomasM125]

It is not recommended to add the income as "Other Income" since the income is actually wage income. So, the best option would seem to be entering the investment sale in TurboTax and indicating it was from an ESPP and indicating that the ordinary income portion of the gain was not reported on your W-2 form. That will give the correct result and would seem to be the easiest way to enter it.

[ajabon]

@ThomasM125 

I have a mix of ESPP that was sold in the same CY and from the previous CY (all disqual). When I step through TT Q&A on ESPP, I get a question at the end on whether the entire amount was included in my W2. In my case, some of it is. There is no option to selectively pick what is and what isn't. So I am stuck between TT thinking everything is already included in my W-2 (which it isn't) or none of it is, which means TT adds everything (including the part already in W-2) to 1040 1h (other earned income).

I noticed that the “other income” section also adds the amount to 1040 1h so I thought I would select “yes” when TT asks me whether the whole amount is included, then go through “other income” to add the missing compensation income. I worked around the 1099-MISC/NEC question by selecting “other” instead of “employee compensation that was not reported in W-2”. This is basically step 2 of TomYoung's post updated for TT Premier tax year 2022.

If using "other income" is not the recommended way I am open to other suggestions on what else I can do to get around this.

[GeorgeM777]

If the amounts included on your W-2 were the same as the amounts not included, then you could just decide which ones to designate as compensation income not included in the W-2.  However, because that is probably not the case, the IRS recommends that you request a corrected W-2 from your employer.  The IRS recommends that you contact your employer first before contacting them to request assistance.   In this regard, the IRS provides the following:

If by the end of February, your Form W-2, Wage and Tax Statement has not been corrected by your employer after you attempted to have your employer or payer issue a corrected form, you can request that an IRS representative initiate a Form W-2 complaint. Call the IRS toll free at 800-829-1040 or make an appointment to visit an IRS Taxpayer Assistance Center (TAC). 

• The IRS will send your employer a letter requesting that they furnish you a corrected Form W-2 within ten days.

• The IRS will send you a letter with instructions and Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensi.... You can use the Form 4852 in the event that your employer doesn't provide you with the corrected Form W-2 in time to file your tax return.

If you are unable to obtain a corrected W-2 from your employer, the other option is to prepare Form 4582, Substitute for Form W-2, Wage and Tax Statement.  However, before completing Form 4582, you need to contact your employer first.  TurboTax can prepare Form 4582 based on your responses; however, because the IRS does not allow electronic submission of Form 4582, you will have to print it out and mail your return to the IRS.  

@ajabon