AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
Are ESPP disqual disps required to be reported on W-2?
Posted by: RichC, January 29, 2016 04:34PM
In 2015 I made disqualifying dispositions of ESPP stock.

My W-2 does not add that to my wages. My W-2 is only showing my cash wages (with the usual FSA, etc. stuff accounted for.

Are employers required to include wages realized from ESPP disqualifying dispositions? Or is that optional for them?

I talked to the relevant administrator here and she insists they don't have to report it. Of course, she also wrongly thinks the full difference between purchase price and sale price should be reported on Sched D, so I'm not taking her word on the employer reporting requirement or lack thereof.

And if they are required to be reported could you give me a pointer to some actual IRS document stating the requirement? Thanks!

Re: Are ESPP disqual disps required to be reported on W-2?
Posted by: Kaye Thomas, January 30, 2016 05:46PM
The IRS says employers are supposed to report this income on Form W-2. See page 11, third paragraph under "Employee Stock Options," in this document:

[www.irs.gov]

The IRS has made little effort to get employers to improve what I see as weak compliance in ESPP reporting by employers. The more important issue is whether you received Form 3922 from your employer. Information on this form would allow you to calculate for yourself the amount of compensation income you should be reporting for this disqualifying disposition. You can simply add this to the amount of compensation shown on Form W-2 when preparing your income tax return, and the IRS will not have a problem with the mismatch because they object only when you report less income than on the W-2. If you're more comfortable with a corrected W-2, though, you're within your rights to request one, pointing to the IRS publication mentioned above.

Kaye Thomas
Fairmark.com

Re: Are ESPP disqual disps required to be reported on W-2?
Posted by: RichC, February 1, 2016 04:01AM
Thanks, Kaye! I sent them a link to my employer and to the E*TRADE document E*TRADE sends to customers with ESPP accounts at E*TRADE (E*TRADE is who my employer uses) saying the same thing. The administrator has now reversed course and is going to investigate rather than just blowing it off.

I did get 3922s, but I have to admit I'm confused by them. Our offering periods are six months. The exercise price is 0.85 * min(price at start of period, price at end of period).

At the first day of a period the (hi, low, close) was 13.75, 13.35, 13.68. On the last day of that period the (hi, low, close) was (21.26, 20.34, 20.94).

The relevant 3922 has the following data:
Box 1 (date option granted): (last day of period)
Box 2 (date option exercised): (last day of period)
Box 3 (FMV on grant date): $13.68
Box 4 (FMV on exercise date): $13.68
Box 5 (exercise price paid): $11.63
Box 8: $11.63

I understand box 5, since $11.63 is 85% of the $13.68 the stock closed at on the first day of the period.

I don't understand boxes 3 and 4 at all, especially given that boxes 1 and 2 both have the last day of the period. Why aren't one or both of boxes 3 and 4 $20.94? instead of $13.68.

Re: Are ESPP disqual disps required to be reported on W-2?
Posted by: Kaye Thomas, February 1, 2016 05:27PM
I agree, the figures provided in this form appear to be incorrect. You're supposed to be reporting compensation income in the amount of the difference between the value of the shares when you bought them and the amount you paid for the shares. Box 4 should be showing FMV on the date of purchase, which appears to be $20.94.

Kaye Thomas
Fairmark.com



Sorry, only registered users may post in this forum.