Espp Disqualifying Disposition W2 Tax Reporting Requirements

If you've sold shares of your ESPP and the sale price is below the discount price, you've made a disqualifying disposition. This means you'll receive a Form 1099-B from your brokerage firm, but not a W-2.

You won't have to pay taxes on the gain from this sale, but you will have to pay taxes on the original purchase price of the shares. The IRS considers this a capital gain, not ordinary income.

The original purchase price is reported on a Form 3922, which your employer should have given you. This form will show the number of shares you purchased, the purchase price per share, and the total purchase price.

You'll need to report this gain on your tax return, using Schedule D to calculate your capital gain or loss.

Readers also liked: Espp Gains on W2

You'll need Form W-2 to report income from a disqualifying disposition of ESPP stock. This form will show the income from the disposition.

Here's an interesting read: Espp Qualifying Disposition

Companies are also required to provide Form 3922, starting with the 2010 tax year, which will give you other numbers you may need.

If you sold the shares, you should have Form 1099-B, which reports your proceeds from the sale. This form will be important if you end up selling the shares at a loss.

A disqualifying disposition occurs when you sell your ESPP shares before meeting the qualified disposition rule. This rule requires that you hold the shares for at least two years from the date they were offered and one year from the date you purchased them.

If you sell your shares before meeting this rule, the sale will be treated as ordinary income. Your employer should include the bargain element in Box 1 of your W-2 as compensation. This is the difference between the fair market value on the purchase date and the purchase price paid.

Here's an interesting read: Espp Offering Date

The Capital Gain/Loss will be reported on Schedule D. You may receive a Form 3922 Transfer of Stock Acquired Through An Employee Stock Purchase Plan.

Here are the key facts to keep in mind:

A disqualifying disposition is not subject to Social Security or Medicare tax. The amount of the benefit should never be reported in Box 3 or 5 of your W-2. The amount of the disposition is usually posted in Box 14 and noted as "ESPP".

A different take: Qualifying vs Disqualifying Disposition Espp

A disqualifying disposition in an ESPP can have significant tax implications. If you sell your ESPP shares within two years of the offering date, it's considered a disqualifying disposition.

You'll need to report the stock sale as ordinary income on your W-2 form, and your employer will include the bargain element in Box 1. This is the difference between the fair market value on the purchase date and the purchase price paid. The bargain element is a key factor in determining the tax implications of a disqualifying disposition.

Consider reading: What Is Disposition Fee on Car Lease

Here's a breakdown of the tax implications of a disqualifying disposition:

It's worth noting that disqualifying dispositions are not subject to Social Security or Medicare tax. The amount of the benefit should never be reported in Box 3 or 5 of your W-2 form.

To determine if you've made a disqualifying disposition, look at the two conditions mentioned by "The Payroll Source": the lookback period and the sale date. If either of these conditions are not met, the sale is a disqualifying disposition.

You'll need to report the value of the ESPP shares you received as income on your W2, which will be taxed at a rate of 22% for the 2022 tax year.

The fair market value of the shares is determined on the date you receive them, and this value is used to calculate the income.

As a general rule, ESPP shares received through a qualifying disposition are taxed at the long-term capital gains rate, which is 0% for taxpayers in the 10% and 12% tax brackets.

However, if you receive shares through a disqualifying disposition, you'll be taxed at ordinary income rates, which can be much higher.

Worth a look: Does Espp Reduce Taxable Income

An ESPP is a type of employee stock purchase plan that allows employees to buy company stock at a discounted price.

If you make a disqualifying disposition of ESPP shares, you'll be taxed on the gain at ordinary income tax rates.

You'll receive a Form W-2 from your employer showing the income from the disqualifying disposition.

The amount reported on the W-2 is the fair market value of the shares on the date of the disqualifying disposition.

This is the same amount you'll report on your tax return as income from the ESPP.