If you participated in a qualified employee stock purchase plan, you do
not include any amount in your gross income as a result of the grant or exercise
of your option to purchase stock. When you sell the stock that you purchased
by exercising the option, you may have to report compensation and capital
gain or capital loss. For additional information on tax treatment and holding
period requirements, refer to Publication 525, Taxable and Nontaxable
Income.
I purchased stock from my employer under a qualified employee stock
purchase plan. Now I have received a Form 1099-B from selling it. How do I
report this?
If the special holding period requirements are met, generally treat gain
or loss from the sale of the stock as capital gain or loss. However, you
may have compensation income if:
- The option price of the stock was below the stock's fair market value
at the time the option was granted, or
- You did not meet the holding period requirement.
The holding period requirements is that you must hold the stock for more
than 2 years from the time the option is granted to you and for more than
1 year from when the stock was transferred to you. If you do not meet these
holding period requirements, there is a disqualifying disposition of the stock.
The compensation income that you should report in the year of the disqualifying
disposition is the excess of the fair market value of the stock on the date
the stock was transferred to you less the amount paid for the shares.
If the holding period requirements are met, but the option price is below
the fair market value of the stock at the time the option was granted, you
report the discount as compensation income (wages) when you sell the stock.
Generally, this compensation income is the lesser of the excess of the fair
market value of the stock on the date of the disposition less the exercise
price OR the excess of the fair market value of the stock at the time the
option was granted less the exercise price.
If the holding period requirement are met and your gain is more than the
amount you report as compensation income, the remainder is a capital gain
reported on Form 1040, Schedule D (PDF). If you
sell the stock for less than the amount you paid for it, your loss is a capital
loss, and you do not have ordinary income.
For more information, refer to Publication 525, Taxable
and Nontaxable Income, and Publication 551, Basis
of Assets.
