1099-NEC Stock Option Exercise post employment

Forum|Forum|4 years ago
March 23, 2022
2 replies
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I received a 1099-NEC for a stock option exercise that occurred a year after employment with an extended exercise window. Do I have to report this as self employed income? Turbo Tax is asking me all these self employment questions when I never did any self employment work I just exercised a stock option earned as an employee a year after I quit.

Does this correspond to this turbo tax answer or do I need to be filling out all the self employment information?

This is not money earned as an employee or self-employed individual, it is from a sporadic acitivity or hobby (this is not common).

GeorgeM777

No, this does not appear to be self employment income. Moreover, it does not appear as if you need to be entering self-employment information or information relating to hobby income.

If all you did was exercise the option, meaning you purchased the stock at the exercise price, and did not sell the stock, there is nothing to report on your tax return. The mere exercise of the option does not trigger a tax event. When you sell the stock, then you will likely have to report whether you had a gain or loss.

@thetrevdev

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thetrevdevAuthor

@GeorgeM777 This was a non qualified stock option and I owe tax on the spread between the exercise price and the fair market value at the time of exercise.

GeorgeM777

Thank you for that clarification. Some incentive option plans with extended windows allow post employment exercise to have the same tax benefits as those provided to current employees. You are correct in that because your option was a non-qualified stock option, the granting of same was not a taxable event, but upon exercise, you would have taxable ordinary income equal to the difference between the value of the underlying security at the time of exercise and the exercise price of the NQSO.

@thetrevdev

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cajielsi1029

Can you let me know on how did you report the income and basis eventually? I'm having same trouble here.

ThomasM125

I assume the Form 1099-NEC reports income equal to the discount you received on the purchase of the stock. If so, you enter the Form 1099-NEC in the Wage and Income section of TurboTax, then 1099-Misc and Other Common Income, then Income from Form 1099-NEC. Indicate that the income was not related to your job, it was not earned in the prior or next year and you did not have a profit motive associated with it. Then it will be treated as "other income" as opposed to self-employment income.

@robertterrinigh

@cajielsi1029

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