ESPP Gain reported on W2, however employer used an after tax Deduction for ESPP Taxes. How do I report this (I did not sale the stocks)?

[s-cook667]

No sale of stocks, however employer reported an ESPP gain in the income statement for the W2. An After-tax deduction was reported in payslip, however was not reported on W-2. How do I claim this after-tax deduction either for this return or on sale of my stocks?

[TomYoung]

It sounds to me like your employer is not offering a "Qualified" ESPP.

With a Qualified ESPP you make your stock purchases with after-tax money, but you get a discount on the stock's price, a discount that is not reported on the W-2 at the time of your purchase.  But a non-qualified disposition of the stock results in W-2 income on the discounted amount. 

Of course you get no upfront "deduction" for a purchase of stock with after-tax money with either a Qualified or Nonqualified ESPP.   The deduction occurs when you sell the stock because you subtract your basis from the proceeds to determine gain or loss.

But from the way you've described things it appears that while you might be buying he stock with after-tax cash, and maybe at a discount, your employer is charging you the discount by creating compensation income that's included in Box 1 of the W-2.  You're buying your stock with less "upfront" money but you're paying taxes on the discount amount because the discount is being considered "compensation."

Check and see if that's not the case here.

Tom Young

[s-cook667]

Thanks Tom, you have captured some of the essence of my question. W-2 income was reported (and hence taxed) for the discounted price, however there was an additional deduction charged in my payroll and not reported that was allocated to ESPP tax. This would appear to be double taxation which is not due as I did not sell the shares?

[TomYoung]

I can only guess about all this of course, but "compensation" requires "withholding" and I expect that's what you're seeing.  The compensation appears as a "cashless" transaction - you were "paid" in stock.  But the withholding has to involve cash and that needs to come from somewhere and the most obvious place for that cash to originate is as additional withholding from your payroll check.  

Withholding is really not "taxation."  You don't know, ultimately, what your tax is until you complete your income tax return.  Withholding is just an estimated payment against that ultimate tax liability and if too much is withheld then you get a refund and if too little is withheld you owe.  You got some compensation, some taxes need to be withheld, your paycheck is the source of the withholding.  The fact that you were paid in stock instead of cash changes nothing.