Issues with ESPP and ESP Comp Wks

[RamonHM]

Hello,

Completing the "step by step" questionnaire on sales of ESPP stock, on the last page titled "Your Employee Stock Plan Results", turbotax calculates the amount of income corresponding to the discount that your employer applied when you purchased the stock. This must be reported as Ordinary Income.

The page in questions displays the amount an puts a question with two possible answers:

"Is this income included in wages?  -Yes  -No"

In my case,  my employer included in my W-2 a couple of disqualifying sales, reporting some of the amount but not all.

(Note: a third option asking for the amount your employer included in the W-2 would be a nice addition)

I solved the issue by answering "-No" and switching to forms (ESP Comp Wks). There, in Part II, I located the ESPP line with the total amount and overrided the corresponding cell in column (f) with the amount included in the W-2, that subtracted from the total in column (h) as expected.

 CAVEAT: Do not mess with the table with amounts from the individual sales in Part I of the same form. If you override a line, just clicking on it copies whatever number is in that cell to another unrelated line and messes up the return. The only solution I found is to exit without saving and starting over from the last save. This seems a bug and I called turbo tax support to let them know.

I am using turbotax.Premier on Windows 11

[RamonHM]

Addendum:

Cancel override reverts to the previous values both cells, the corrected one and the unrelated altered cell. This is faster than exiting without save.

[MarilynG1]

It is suggested that you enter your 1099-B as a regular stock sale (as long as you know your Cost Basis).  There is no tax reason to go through the Employee Stock interview screens, and they can be confusing.

When entering your 1099-B, check the box to indicate Cost Basis needs to be corrected and then report your correct basis.

@RamonHM

[RamonHM · Accepted solution]

Hello Marilyn,

This is not so easy. In summary, ESPP sales must be entered as such because the discount applied by the employer when buying the stock is taxed as ordinary income and not as stock sales profit (unless it was taxed as ordinary income when buying the stock, which is not common). This is if the sale price is more than the purchase price (the ESPP plan provides  more details on this). This amount is also added to your basis, so that you are not taxed twice.

So, after entering the transaction and saying that this was a sale of employee stock, then that is was ESPP, I clicked in the option "I have all my info.... and can enter on my own". There follow four simple questions about Date sold, Net proceeds, Date acquired and Adjusted cost basis, as well as the amount of Compensation Income for this sale. I agree that the questionnaire is complex, but I had all the information needed from my employer and the broker managing the plan so that I could choose to enter it myself.

Once all the 1099-B transactions are entered, turbo tax calculates the amounts that must be added to the Compensation Income for ESPP and also Stock Options, and asks whether the amounts are already included in wages. The possible answers are Yes or No, but in the ESPP case, the employer will include in the W-2 the corresponding income for disqualifying dispositions (sales before 2 years after the beginning of the offer period), and this amount must be subtracted from the total previously calculated.

I could correct this easily by answering No, then switching to forms (ESP Comp Wks) and entering the amount included in the W-2 in the Part II table , column (f) on the ESPP line. It would be nice if turbotax asked for the amount reported on W-2 and automatically filled the Wks, instead of a Yes-No question that does not cover all the situations.

I made my entry as suggested by the turbotax support expert I consulted online to let the community know and also to check on what I believe is a bug in Part I of the same page, when clicking override on a cell on the transactions table, column (e), overrides a random(?) cell on the same column and alters the results on Part II. The expert agreed that this looks like a bug. So, do not click override on Part I!