Are employers required to disclose the 15% ESPP discount?
June 7, 2016
Date: 8 Dec 2015
Hi Michael – I have a question on ESPP reporting. Are employers required to disclose the 15% discount on purchase of ESPP shares on employee W-2s? The broker who handles the ESPP will be sending out 1099-Bs showing the short term reportable gain. So, I feel like reporting the 15% discount as ordinary income on the employee’s W-2 will be double reporting the same amount and may cause an employee to pay twice on this.
Date: 11 Dec 2015
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The 15% discount for an ESPP is ordinary income when the stock is sold in a qualified sale – more than two years after the subscription date and more than one year after purchase. (Actually the lesser of the 15% discount based on the fair market value on the subscription date or the gain on the sale.)
For a disqualified disposition, the ordinary income is the excess of the fair market value on the purchase date over the cost.
The ordinary income is added to the cost of the stock when reporting the sale on Schedule D.
Employers usually include the ordinary income for disqualified disposition in W-2 income. They are inconsistent on reporting the ordinary income for qualified dispositions. If the ordinary income for a qualified disposition isn’t included in W-2 income, it should be separately reported as “other income.”
If a decedant is holding ESPP stock at the date of death, the ordinary income should be reported on the decedant’s final income tax return.