How do I report the bargain portion of ESPP?

[InvisibleCrow]

I sold qualifying ESPP shares.   The 1099B shows cost basis after the 15% discount.  As I understand, the 15% needs to be reported as ordinary income but not very clear how.

[RaifH]

The 15% discount from your ESPP purchases should be included in your Box 1 Wages amount and the taxes withheld are also reported on your W-2. You may see the amount of your ESPP discount noted in Box 14. 

You may also want to ensure that the 1099-B reports the sale of ESPP stock using the correct basis. There should be supplemental information on the 1099-B and your employer should provide Form 3922 which will have the adjusted basis that you would want to report. To adjust the basis on your sale of ESPP stock:

1. In the Federal > Income & Expenses > Investment Income section of your return, click Start/Revisit next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
2. Answer Yes and then select stocks. Import or enter your transactions manually. 
3. For the ESPP transactions, make sure to select Yes to Do these sales include any employee stock?
4. Enter the transactions as they appear on the 1099-B with ESPP selected as the type of investment.
5. If the basis reported on the 1099-B is not correct, you will be able to adjust it to match the supplemental information provided under Adjust your cost basis to ensure your best outcome after you enter the stock sale. If your ESPP discount was not reflected on your W-2, you can also enter it as Amount of compensation income for this sale as you are guided through the ESPP sale screens.

This TurboTax article has more information on the taxation of ESPP sales.

[InvisibleCrow]

Ok. I'll check with employer if the discount is already reported as income in W2.  

On the adjustment of cost basis on 1099B;  Right now it's the post discount amount.  There's nothing on 1099B supplemental form related to this but  I do have the "FMV cost on exercise date" from form 3922. 

@RaifH  - To confirm, the cost basis on stock sale side need to be the FMV (amount before the discount), correct??

[RaifH · Accepted solution]

Yes, that is correct. 

The amount of discount you got between the fair market value and the price you paid should be reported as income on your W-2. If it is not, you will have to include that in the Amount of compensation income for this sale.

The capital gains are the difference between the price for which you sold the shares and the fair market value of the shares when you exercised them.