Employers often compensate employees with benefits other than just a paycheck. Stock options and stock purchase plans are increasingly popular.
Some of the more common options and employee stock plan, as well as tax declaration forms required to take the time to less stressful tax.
of stock options and packages
Employee Stock Plans purchase (ESPP)
This voluntary program, provided by your employer allows you to make employee contributions to be used to buy company shares at a price. The discount can be up to 15% below market price.
Generally there is an offer period in which the employee can make contributions to the program. The share price for purchase on the market is then determined on the date of purchase, when the employee contributions are used to purchase shares at a price in the name of the employee.
Based on how long the employee has the stock, the rebate is considered ordinary income and included in the W-2 form by the employer (not eligible position) or it is considered a capital gain income and recognized at the time of sale (qualifying position).
to ineligible positions , your adjusted cost basis is the income of the compensation reported on the W-2 form and your cost.
to eligible positions , your cost basis is simply the cost for the delivery received be reported as a capital gain instead of ordinary income .
Restricted Stock Units (RSU)
These share units are awarded to employees as a form of compensation. The employee does not receive the stock at the time of the award, but has a specific acquisition plan indicating when the employee will receive the stock.
At a time when the stock vests, the employee receives the units and the fair market value (FMV) of the stock received by that date is considered income. According to the employer's plan, you can choose to pay income tax when the stock is assigned when the stock vests, or the date of vest.
The amount reported as income on
Incentive Stock Options (ISO) W-2 form from your employer at the time the shares vests will be your adjusted cost basis of these share units.
requirements for ISO units are stricter and in turn provide more favorable tax treatment.
ISO units must be kept for at least one year after the options are exercised. Also, you can not sell the shares until at least two years after the options are granted.
For these reasons, any discount you get by purchasing these options are taxed as long-term capital gain, which gives a lower tax rate than ordinary income.
not eligible stock options (NSOs)
Although ISO units are more restrictive, the ONS units are more general. These stock options will generate ordinary income and capital gain / loss.
When these options are granted, they are granted at a predetermined price. This enables the employee to exercise these options at this price regardless of the share price on the date the option is exercised.
When the option is exercised, the employee has a regular income for the difference between the price they pay (price subsidy) and the fair market value (FMV) on the date they purchased the stock (exercise price).
tax return Forms
W-2 form
If you have your employer's compensation income in the current year, this income is included in the form W-2 in box 1.
If you sold stock units to cover taxes, this information is included in the form W-2 as well .
You should consider Boxes 12 and 14 as explained any income included on your W-2 form linked to your employee stock options.
1099-B form
you will receive a 1099-B form in the year you sell the stock units. The form reports any capital gain or loss from the transaction on your tax return.
You should consider your investment records to verify the amount of the cost base of 1099-B Form. The base cost of your 1099-B form is based on the information available at your brokerage. If the available information is incomplete, the amount of your cost basis may be incorrect.
If the amount of your cost basis on the 1099-B form does not match your adjusted cost basis according to your records, enter an adjustment code B in TaxACT. Similarly, your W-2 will likely not include your cost basis on the 1099-B form, so you'll want to enter an adjustment amount with B. code
If your 1099-B form is a shortage amount of the cost base, you must always calculate and report your cost basis on your tax return.
3921 form
Form 3921 is issued for stock options in the year they are transferred to the employee.
This form includes information needed to properly report the sale of these units when you decide to sell them in the future.
Although you must enter the information of the 3921 form in your tax return for the year you receive the form, you must save the form with your investment records.
3922 form
3922 form is issued for stock options that you bought but did not sell.
Since you have not sold the stock, the requirements of the holding period has not been determined. Therefore, the employer does not include income compensation on your W-2 form ordinary income.
3922 Form is issued to you for future use when you sell the units and the need to report the income on your return statement.
As the 3921 form, save the 3922s form with your investment records.
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