1099-B Selling of company matching shares to cover tax. Do I treat these as employee stock plan? If so, which?

[John14]

Matching shares were awarded (1 share for every 3 shares purchased) after vesting period of purchased shares. When the matching shares were awarded after the 2-3 year vesting period, some of it was sold off to cover taxes (foreign?) and I received a 1099-B for the sell off.

I couldn't find anything which specifies what type of plan that it is from my documents.

i. Employment Income at the time shares (i.e. Matching Shares/ PS Shares) are transferred to you without charge. The amount of taxable income is equal to the full fair market value of the shares (or fractional shares) at the time of transfer. To determine fair market value, the company references the closing price on the XETRA on the transfer date in Euros, converted into U.S. dollars using the foreign exchange rate in effect on that date.

Taxation of Matching or PS Shares
The transfer of the Matching or PS shares will be treated as taxable compensation income to you. As such, it will be subject to U.S. income and social security tax withholding by your employer. The taxable compensation, as well as the related withholding taxes, will be reported on your paycheck. It will also be reported as wages on the annual Form W-2, Wage and Tax Statement, issued by your employer.

[TomYoung · Accepted solution]

The information provided by the company, (I assume that's the last 2 paragraphs of your post), does provide the information you need to know.

When you receive the "free" shares compensation is calculated and included on your W-2.  The compensation is calculated as: 

 (GROSS number of shares awarded) x (per share "fair market value" of the shares at the time of the award)

Your per share basis in the shares is exactly the same as that per share "fair market value" used in the above calculation.  If that number isn't disclosed to you somewhere in your paper work, simply take the GROSS number of shares and divided it by the compensation created; I'll bet that number is disclosed to you somewhere on your W-2.

Because the award of the stock creates reportable compensation, it also creates the need to withhold taxes.  The cash necessary to pay the tax was, in this case, raised by selling some number of the GROSS number of shares you were awarded.  This cash was passed back to the employer, who paid the various governments and scattered the taxes paid around the various "taxes" boxes on the W-2.  Typically these tax numbers aren't disclosed to you on the W-2. 

(As an aside, it really doesn't matter where the cash for the taxes comes from.  In many of these "incentive stock" situations you could hand the needed money to the employer from your own pocket and keep the GROSS number of shares awarded in your own portfolio.)

If you get a 1099-B for the sale of the shares then you need to report the sale.  You need to report the sale using the correct basis; it's not the "$0" that might be shown on the 1099-B.  (Brokers are only obligated to report your "out of pocket" cost for employer incentive stock and since you paid nothing - out of pocket - for the shares I'd expect the 1099-B probably would report $0 as the basis.)

You really do not need to use one of the employer incentive plan "Guide me" interviews here, you can simply use the default 1099-B reporting method, correcting the basis.

Enter the 1099-B as it reads on the default 1099-B entry form but then click on the "I'll enter additional info on my own" blue button.  On the next page enter the correct basis in the "Corrected cost basis" box.  The correct basis is (number of shares sold) x (correct per share basis, which includes the compensation per share)

TurboTax will report the sale on Form 8949 "as reported by the broker" but will put an adjustment figure into column (g) of the Form, a code "B" into column (f) of the Form, and the correct amount of gain or loss which includes the adjustment.

Tom Young