ESPP qualified disposition cost basis adjustment

[gdnmaximus]

I have qualified ESPP dispositions in 2024 for the stocks I purchased in years 2020, 2021 and 2022. Based on my research, the 15% discount for the lots sold should get added as ordinary income to my W2 box 1. Further, as my 1099-B has the discounted cost basis, my plan is to adjust that to use the FMV at the time of purchase to avoid double taxation. However, I’m not sure if the ESPP discount got added to my 2024 W2 box 1. I believe there’ll be a notation in box 14 regarding the ESPP discount but I don’t see that. Is there any way to find out if the ESPP discount got added as ordinary income on my W2?

If the ESPP discount did not get added as ordinary income to my W2, should I ignore the cost basis adjustment and go forward OR should I get my W2 corrected OR what else should I be doing?

[ThomasM125]

The discount is reported in box 1 of your W-2 but not in box 3 or 5, as it is not subject to social security or Medicare tax. So, you may be able to discern by the amount in box 1 if it includes the discount on purchase of the stock. Also, be aware that if you contributed to a retirement plan with your company, those contributions would be subtracted from the box 1 entry but not box 3 or 5, so you'll need to factor that into your analysis. The retirement plan contribution should be listed in box 12 of your W-2 with code D through H.

It would be best to get the W-2 corrected if necessary, but you could also enter the discount income as "other income" by making this entry in TurboTax:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description of the adjustment and the amount

[gdnmaximus]

Thanks for the response, Thomas. I figured it out and the discount amount has not been reported in the W2 since I converted my ESPP shares into common shares before selling. The brokerage confirmed that they only send information to my company if ESPP shares are sold. So, I don’t believe I’ll get double taxed. My plan is to not adjust the cost basis on the 1099-B and leave it as the discounted price which is after the 15% ESPP discount. Any problems with this approach?