Is income from my ESPP stock sale considered earned income?

[hellomike99]

I am retired, but received a W2 from my old employer.  The statement showed income from my ESPP stock sales for 2019.  Can I consider this earned income and put monies in my IRA to offset the tax I owe?

Note 100% of the W2 income was from ESPP income only.

Please advise 🙂

[DanaB27 · Accepted solution]

Yes, the ESPP income reported on your W-2  box 1 would be considered taxable compensation.

You need taxable compensation to be able to contribute to an IRA. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). (Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)).

[tsfllmsb]

if income from ESPP sell in 2020 does not get reported on w2 since I retired in 2019 from company, would it still count.  My understanding is that I have to report a part of the sell as ordinary income based on tax code and forms 3922 I received. 

[MarilynG1]

Yes, if you sold ESPP shares and did not receive a W-2 from your former employer, the discount you received would be reported as Other Reportable Income where you can specify ESPP sale. 

This amount should also be added to the cost basis of these same shares when they are sold and reported on a 1099-B. 

Use the ESPP interview in TurboTax to guide you.

Remember that this section is currently not yet updated for 2021.

Click this link for more discussion on Reporting Ordinary Income from an ESPP Stock Sale. 

[pagstuff]

I think the question was if the discount has to be reported as "Other Reportatble Income" instead of being shown in Box 1 of a W-2, is it still taxable compensation toward an IRA contribution?  I am running into this scenario where I contributed to IRA (and subsequently backdoor Roth and changed brokerages) on the expectation of having the taxable compensation, only to find out that being separated from the company for more than 3 years they no longer file the W-2, but do send a "Statement of Taxable Income" showing an amount as "W-2 income"

[DaveF1006]

Yes, this would still be considered taxable compensation even if it was contributed to an IRA. You would need to track this on a form 8606 to be listed as a non-deductible contribution.