ESPP long term qualified gains without adjusted cost basis

[ashwinangle30]

I purchased ESPP stocks at a 15% discount from my previous company in 2018 and 2019. I received Form 3922 for each year, however, I am not sure about how to enter them in turbotax since I did not receive supplemental form for adjusted cost basis.

I entered details of each transaction on Form 1099-B and linked it with Form 3922 and it calculated the cost basis and it asks if the same is part of my W2, how do I know if its part of W2 from 2018 or 2019? I sold them in 2023 so not sure how it will be part of 2018/19 W2? Why can turbotax not figure this out?

[ThomasM125]

It is possible that your stock was statutorily non-qualified stock, in which  case the discount would be reported in the year the stock was acquired, but more typically it would be incentive stock which would be qualifying since you held it for more than two years.

You would have to look on your W-2 to see if the discount was included in your wages reported in box 1. TurboTax would not have sufficient information to determine that, as there may not be a definitive entry on your W-2 form indicating if there was ESPP discount included. One indication would be that your box 1 wages would be more than your box 3 (social security) wages, since the discount would not be subject to social security tax, so those wages would be less than your normal wages reported in box 1.

As a practical matter, since you sold the stock more than two years from when you acquired it, it would typically get qualified employee stock treatment because of the long holding period. If this was the case, the discount would be reported on your W-2 form in box 1 in the year you sold the stock as opposed to the year you purchased it. If you received a W-2 form from your previous employer in 2023, that would be definitive evidence that the discount was reported in 2023.

[ashwinangle30]

This ESPP was from my previous employer, how would the new employer know about the ESPP stocks that I sold? Is there a way to confirm this W2 form? What do I look out for in this form? My W2 only has individual boxes with the figures, is there a way to get the breakdown?

[DavidD66 · Accepted solution]

If you sold stock that you acquired through an ESPP with a previous employer, your W-2 from your current employer would not have any information on your sale of those shares.   You need to report the ordinary income portion of the sale on your tax return.

This, is obviously a qualifying disposition (sale) because more than two years have passed between the offering date and the sale date, and over one year between the date of purchase and the date of sale. 

You need to report ordinary income in the amount that is the lesser of:

• Your gross sales price minus the actual discounted price you paid for the shares, or
• The per-share company discount (15%) times the number of shares. 

For your capital gain:

• The sales proceeds is reported on your 1099-B
• The cost basis is the actual price paid per share times the number of shares, plus the amount the amount calculated above that you're reporting as compensation income on your Form 1040.

If you have Form 3922 you should have all the information to calculate/report your sale, the ordinary income, and the capital gain.  If you use the TurboTax Employer Stock interview for ESPP shares, I recommend you enter/report each purchase block separately (i.e. don't mix cost basis shares together).  The program will calculate the gain and the ordinary income and report them on your tax return.  

For more information see the TurboTax Help Article:  Employee Stock Purchase Plans