NSO Income and Taxes withheld not reported on W-2

[cspinelive]

I left a company and months later exercised my NSOs. It was a cashless exercise where I used some of the shares to pay the cost and tax withholding. My company uses Carta. 

For example. I exercised 1000 options at 0.1 per share. FMV was 0.5 per share. I used 300 shares to cover the purchase costs. And 100 shares to cover the estimated tax withholding. leaving me holding 600 shares. (This math doesn’t work but go with it)

It sounds like I owe income tax on the $400 gain from the initial exercise. (.5 - .1) x 1000?

Do I also have a short term capital loss on the sale of the shares to cover the costs and taxes? (400 x .5) proceeds - ((400 x .1) cost + $400 w-2 income)

200 - 40 - 400 = -$240 loss?

None of this was reported on my W-2. Should it have been? They withheld (actually I paid) taxes but I don’t have a breakdown of amounts that went to federal, state, Medicare, etc. Should I?  

I was granted the options while employed but exercised them after I left. 

Should I get a 1099-B from Carta for any of this? I’m thinking I might for the sale of shares to cover the costs and taxes?

I’m the first employee to leave and exercise their options. Those still employed haven’t exercised yet either since there’s a 10 year deadline that hasn’t come yet and the company is still private.  So I’m guessing my former employer might not know they need to report this on my W-2?  

If they don’t issue a corrected w-2 how do I report the income properly? How do I report the taxes already paid? Anything else I need to consider or have got wrong here?

[GeorgeM777]

NSOs are generally taxed (for regular federal income tax purposes) upon exercise in an amount equal to the difference between the exercise price and the fair market value (FMV) of the shares on the date of exercise.  Thus, here it appears you would owe tax on all of the shares you sold, the 300 shares used to fund the purchase, and the 100 you sold to cover the tax liability.   Essentially, you exercised the option to purchase 1,000 shares at .10 and thereafter you sold 400 shares at .50, leaving you with a gain of .40 per share sold. 

[cspinelive]

Thank you. How about if I hadn’t sold any of them. Just exercised and held. Wouldn’t I still owe income tax on the 1000 shares x 0.4 difference? Simply from the exercise event? $400 would be treated like wages income. 

0.5 per share then becomes my cost basis for any gain or loss when I sell the shares in the future since I already paid income taxes on that full amount. 

If so then the 400 shares I sold were sold at cost and have no gain or loss?

Im using this for reference here. https://www.wealthenhancement.com/s/blog/non-quali[product key removed]ns-taxation-MCSRY2C4B4V5DYFNI...

[DianeW777]

Yes, if you hadn't sold them, you would have paid tax on the difference between your exercise price and the fair market value on the date of exercise because they are nonqualified stock options.

Yes, if you hadn't sold any, your stock cost basis per share would have been .5 per share. The amount used to purchase the stock and the amount taxed as part of your wages becomes the cost basis.

Shares were used to complete the transaction in addition to your cash out of pocket (I used some of the shares to pay the cost and tax withholding). This likely leads to gain on the sale. This part is not in the example in your link.