You only pay tax on the gain when you sell stock since the cost of the stock is money you invested in it, so the return of that money to you is not income. Income is only the gain, the difference between what you sold it for and what you paid for it.
As a rule, when you are dealing with company stock you have a discount when you acquire it and capital gain income when you sell it. You pay tax on the gain you receive, which is in part the discount and the gain from the potential increase in value of the stock over time. The discount is reported on your W-2 form in box 1 as wages, normally in the year you sell the stock. You will receive a Form 1099-B that will report the sale and cost of the stock on which you will calculate your capital gain income. Often, the cost reported on the Form 1099-B is incorrect as it may not reflect the income reported on your W-2 form. In that case, you need to adjust the cost basis to a different amount. TurboTax will ask questions to help you determine what adjustment to make to your cost basis when you report the sale of company stock in the program.
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