How do I enter ESPP sales when some are Qualified and some are Disqualified and my employer only includes Disqualified sales on my W2?

[czbeaker-mint]

This year I sold some shares of my ESPP that were Qualified distributions and some shares of my ESPP that were Disqualified distributions. My employer includes the Disqualified amounts on my W2, but does not include the Qualified amounts. How do I answer the "were ESPP amounts included on the W2" properly when some were included and some were not? How can I make the calculations correct so that I include the Qualified amounts appropriately with additional Compensation income but do not include the Disqualified amounts since they are already accounted for by the W2?

[TomYoung · Accepted solution]

Somebody in TurboTax decided to eliminate the box that used to be on the "Your Employer Stock Plan Results" page of the program prior to 2015 that allowed you to tell TurboTax, "no, that's the wrong amount and here's the correct amount."  When that box was on that page you could inform TurboTax of the amount of compensation actually reported on the W-2.  TurboTax would then take the difference - the correct amount it calculated minus the amount reported on the W-2 - and make an entry to be included on line 7 of the Form 1040 for that difference.

You have a few different ways of going here.

1) If you've entered all your trades then the first way is to write down how much compensation is being reported with each Disqualifying trade and then deleting the Disqualifying trades.  Re-enter the Disqualifying trade or trades on the default "1099-B" entry form and simply correct the basis figure(s) reported by the broker.  (Click the blue "I'll enter additional info on my own" button.  On the next page enter the correct basis in the "Corrected cost basis" box.That will allow you to add the missing amount of basis and TurboTax will show all this correctly on Form 8949.)

The Disqualifying trade or trades is/are now correctly reported: the compensation element is reported on the W-2 and you've used the correct basis for the sale, or sales.

That will leave only the Qualifying trades having been entered using  the ESPP step by step process and the compensation calculated by TurboTax will only encompass those trades.  Then when you get to that "Your Employee Stock Plan Results" page you would answer "No."  TurboTax will then make the correct adjustment to line 7 of the Form 1040 and those trades will also have the correct basis reported on Form 8949.


2) If you've entered all your trades then the other way you could handle this is leave things as they are and answer "Yes" to TurboTax's question about the amount reported on your W-2.  TurboTax will make no adjustment to line 7, but your trades will be correctly reported.  Then, you tell TurboTax about the line 7 adjustment needed for the Qualifying trades by:

Starting the "Miscellaneous Income, 1099-A, 11099-C" interview.
Starting the "Other income not already reported on a Form W-2 or Form 1099" interview.
Answering "Yes" on the "Other Wages Received" page.
Entering $0 on the "Wages Earned as a Household Employee" page.
Entering $0 on the "Sick or Disability Pay" page.
Answering "Yes" on the "Any Other Earned Income" page.
Ticking "Other on the "Enter Source of Other Earned Income" page.
Entering a description and an amount on the "Any Other Earned Income" page.


3) Finally, another workaround is to enter the Disqualifying trades trades using the correct name of the employer and answering "Yes" to the "on the W-2?" question, then enter the Qualifying trades using a slightly different version of your employer's name and then answering "No" to the "on the W-2?" question.  That will get the Qualifying trades' compensation reported on line 7 of Form 1040.

Tom Young