Should incentive stock option gain be reported on my W-2?

October 10, 2011

Subject:   Question on ISOs
Date:   27 Mar 2008
From:   Gaurav

I exercised incentive stock options (ISOs) in February, 2007 and sold the shares in the same year (June, 2007.) I left the company during February, 2007.

Should the gain have been reported on my W-2 from the company or Form 1099? (I received the 1099-B statement for the sale but the income was not on my W-2.)

Am I subject to Medicare taxes for the ordinary income?


Date:   10 Apr 2008

Hello Gaurav,

Your former employer should have reported the income on your W-2. In order for them to do this, you would have to notify the employer of the date of sale and the selling price for your sale of the stock.

The sale is still reported on Schedule D. Add your ordinary income to the option price to get the tax basis or “cost” of the stock to report on Schedule D.

The ordinary income from the disqualifying disposition of ISO stock is not subject to employment taxes like Medicare tax.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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