7

I sold some Employee Stock Purchase Plan shares on 12/31/2014. As far as I understand, the ordinary income portion of the sale should have been reported on my 2014 Form W-2 from my employer but was not. The sale was reported on a 2014 Form 1099-B from the brokerage. I calculated and reported the ordinary income portion of the sale on my 2014 tax return. The shares were acquired in July of 2014, the same tax year in which they were disposed.

On my 2015 Form W-2, the ordinary income from that sale was included in the taxable wages in box 1. I contacted my employer who simply replied that income is taxable in the year it is received, which doesn't seem like it applies to this case since it's imputed income, not wages paid.

Should I keep pressing my employer to issue a corrected W-2? If not, what should I do?

UPDATE (even though I may literally be the only human to ever encounter this situation, notice, and care):

I called the IRS live human support line multiple times, and was finally and definitively told that they're not trained for this kind of question.

I was directed to Publication 525, which I see specifically states:

Your employer or former employer should report the ordinary income to you as wages in box 1 of Form W­2, and you must report this ordinary income amount on Form 1040, line 7. If your employer or former employer doesn't provide you with a Form W­2, or if the Form W­2 doesn't include the ordinary income in box 1, you still must report the ordinary income as wages on Form 1040, line 7, for the year of the sale or other disposition of the stock.

Therefore, it is clear that the income was taxable in 2014.

I may need/be able to file form Form 4852, Substitute for Form W-2 with an amended return for 2015.

UPDATE 2: The IRS accepted my amended 2015 return and issued a refund by paper check, including some interest (which is taxable).

  • What do you mean "sold some shares"? – littleadv Feb 16 '16 at 7:05
  • 1
    @littleadv What do you mean what do I mean? I had shares of a publicly traded company which I had purchased through an ESPP, and I sold some (not all) of those shares. I'm glad to answer any clarifying questions but I'm not clear what your question is. – stannius Feb 16 '16 at 16:10
  • What I mean is whether these are shares you just got as the period ended and sold them right away automatically, or you held them already in your brokerage account. Also, how did the broker report this? – littleadv Feb 16 '16 at 17:37
  • I acquired the shares in July 2014. I have edited my question to include the fact that the broker reported the sale on the 2014 1099-B it issued to me. – stannius Feb 16 '16 at 17:40
3

Based on the statement in your question you think it should have been on the 2014 W-2 but it was included on the 2015 W-2.

If you are correct, then you are asking them to correct two w-2 forms: the 2014 form and the 2015 form. You will also have to file form 1040-x for 2014 to correct last years tax forms. You will have to pay additional tax with that filing, and there could be penalties and interest.

But if you directed them on the last day of the year, it is likely that the transaction actually took place the next year. You will have to look at the paperwork for the account to see what is the expected delay. You should also be able to see from the account history when it actually took place, and when the funds were credited to your account.

or you could just pay the tax this year. This might be the best if there is no real difference in the result.

Now if you added the sale to your taxes lat year without a corresponding tax statement from your account, that is a much more complex situation. The IRS could eventually flag the discrepancy, so you may have to adjust last year filing anyway.

  • And if the sale took place on an exchange, then the actual settlement (you receiving the cash) probably did not happen on the same day as the sale order was issued. Even private "exchanges" have processing time, and public exchanges often have a T+3 (three business day) delay from order initiation to order completion. – Peter K. Feb 16 '16 at 13:31
  • 2
    @PeterK. For a normal stock sale the transaction date is the date of the sale, even though the money is not available for withdrawal until the settlement date 3 days later. – stannius Feb 16 '16 at 15:54
  • @mhoran_psprep I did report the ordinary income on my 2014 tax return. If I were to get a corrected 2014 W-2, and filed a 1040X, the numbers would not change since the income was already included. Can you file a 1040 with no changes, just to make it clear that the original 1040 was correct? The stock sale was reported on the 2014 1099-B from the brokerage. So officially, the sale did take place in 2014 and was taxable that year, even though settlement was a few days into 2015. – stannius Feb 16 '16 at 16:29
  • @stannius Not according to Charles Schwab. – Peter K. Feb 16 '16 at 16:48
  • 2
    @PeterK. Yes according to TurboTax. I am not arguing that T+3 doesn't exist, just that for tax purposes, a stock sale is taxable in year the trade executes, not the year it settles. That said, I am less than 100.000% sure that the ordinary income portion of an ESPP sale follows that same rule. – stannius Feb 16 '16 at 16:52
1

You mentioned that the 1099B that reports this sale is for 2014, which means that you got the proceeds in 2014.

What I suspect happened was that the employer reported this on the next available paycheck, thus reporting it in the 2015 period. If this ends up being a significant difference for you, I'd argue the employer needs to correct both W2s, since you've actually received the money in 2014. However, if the difference for you is not substantial I'd leave it as is and remember that the employer will not know of your ESPP sales until at least several days later when the report from the broker arrives. If you sell on 12/31, you make it very difficult for the employer to account correctly since the report from the broker arrives in the next year.

  • What do you mean by "leave it as is" - are you suggesting I pay taxes on the income even though I already paid taxes on it in 2014? Depending on the amount of effort / risk of audit / how much I value my time, that might be worth it. I thought I was so clever selling the stock on 12/31 to clear up a wash sale in the same tax year it was triggered, but in retrospect, I've just caused myself more pain and effort. – stannius Feb 16 '16 at 17:52
  • 1
    @stannius you can amend your 2014 return or attach a statement to the 2015 return, but what I mean is not to have W2s corrected. – littleadv Feb 16 '16 at 17:54
  • So you agree with the other answer that I need either two or zero corrected W-2 forms issued? And by significant / substantial, you mean, big enough for the IRS to take notice? – stannius Feb 16 '16 at 17:56
  • @stannius yes. And substantial I mean for you, not the IRS. – littleadv Feb 17 '16 at 3:19

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.