Question

Exercised Stock Options - W2 and a 1099-B?

Forum|Forum|4 years ago
March 30, 2022
1 reply
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I exercised stock options in 2021. I received a W2 for the proceeds (including tax withholding). However, I also received a 1099-B for the proceeds. Am I being taxed twice for the same money? Is this correct?

TurboTax Home & Biz Windows

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GeorgeM777

You should not be taxed twice and your 1099-B may reflect shares sold to cover your company's tax withholding obligations. What type of incentive stock plan do you have? For example, is it a Employee Stock Purchase Plan (ESPP)? Or is it just a stock incentive plan that allows you to purchase shares in the company below the market price? In either case, the bargain element, which is the discount you received when you exercised the option, is generally taxed as ordinary income. It might be included on your W-2, or it may be up to you to include that income on your tax return.

Because you received a 1099-B reflecting sale proceeds, did you sell the shares you purchased after exercising the option? If you did, the sales proceeds you see on the 1099-B will not be included on your W-2. Thus, you won't be paying tax twice on the sale proceeds if you include them on your tax return.

Depending on the incentive stock plan, companies may be obligated to sell shares to cover their tax withholding obligations. Generally, these "sells to cover" are done at the same price as the option exercise price so there is neither a gain or loss to report. However, to the extent there is a difference in prices, the employee may have a gain or loss to report, and if commissions/fees were charged, the employee will want to include those commissions/fees in their cost basis when determining their gain or loss.

Don C3

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M

msyunger

The question was for 2021 taxes, but I have the same question for 2023 -- not sure if tax law changed.

If I understand the language, "exercising" the options is the buying of the shares. So, I would have bought the shares at the option price and sold them at market price, generating a gain.

I have received both a 1099B and W2 for the same transaction.

Turbo Tax has recognized these as separate transactions, and I am being taxed twice.

Am I missing something?

SteamTrain

Employee

.......for the 1099-B.....since the gain was reported on yoru W-2....You are supposed to update the Cost Basis for the stock to be the same as the sales price on the date you bought and immediately sold. The proceeds will be slightly lower and a small loss if brokerage fees reduced the total proceeds.

That removes the double-taxation

TTX has a long explanation on how to do this....See Example #2 here for details....it applies to both NQSO's and ISO's where an immediate exercise&sale was done:

Non-Qualified Stock Options - TurboTax Tax Tips & Videos (intuit.com)

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If you bought them and held them for a while, then perhaps one of the other options applies....but the help article is specific to NQSO shares for some of those situations..

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..and ISO's purchased and held for over a year have different details involved.

Incentive Stock Options - TurboTax Tax Tips & Videos (intuit.com)

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*