I'm finding your explanation confusing and I'm also not sure if you have your facts right. So let's back up and discuss how the exercise of a NQSO and the sale of the stock should work.
First, it's the exercise of the NQSO, not the sale of the stock, that creates compensation. The amount of compensation is calculated as:
GROSS number of shares exercised x (per share FMV of stock at exercise date - per share exercise price)
This compensation is independent of any sale of the stock, If you don't sell a singe share this compensation should be calculated and included on the W-2. The W-2 does not report the "sale" of the stock, the W-2 does not report the "gain" from selling the stock.
If this really was a NQSO then the compensation should have been included in Box 1 of the W-2 and separately disclosed to you in Box 12 with the amount coded "V".
FIRST QUESTION TO YOU: You are absolutely sure that the compensation was not included on the W-2? If that's really the case then you should ask for a corrected W-2.
"The transaction confirmation from the stock plan shows taxable income as
well as withholding for Federal, State, FICA Social Security and FICA
Medical taxes. None of that is included in W-2. The stock plan sent
1099-B without any withholding."
All of that is evidence to me that you engaged in a "same day" sale of the stock - some or all of it - and that some of the money was diverted back to the employer for federal, state and payroll taxes. I expect you received the net of this, probably after a further deduction for the exercise amount you should have paid to acquire the stock in the first place. The broker, except in very unusual situations, does not withhold income taxes and never withholds payroll taxes. That's why you don't see any taxes being reported on the 1099-B.
"Where and how can I enter all of the tax withholding related to the sale?"
I'm willing to bet you money that all the withholding has already been reported on the W-2, because the typical treatment is that the money "for taxes" and "for exercise" is passed back to the employer, who pays the government. Although the compensation associated with the exercise should be disclosed on the W-2 there's typically no disclosure about NQSO-related taxes on the W-2. You can ask your payroll department to be sure.
"TurboTax does ask whether or not the income from NQSO sale is included
in W-2. So there is a way to account for it even if it is not reported
on W-2."
There is a way, but I don't think you need it. I think everything is on the W-2 already, you just don't know it.
Frequently people ask the question of "how can I enter all of the tax withholding related to the sale" because they see their income taxes go way up when the enter the sale of the stock. In almost all cases that's because they are using the wrong basis to report the sale. Your per-share basis is the same as the per share FMV used by the employer to calculate the compensation, not the per share amount you paid to exercise. Accordingly a "same day" sale - which is what I'm guessing happened here - typically shows a small loss due to selling commissions and fees.
Tom Young
