Stocks (Options, Splits, Traders)
Question: How do I report participation in a § 423 employee stock purchase plan on my tax return?
A § 423 employee stock purchase plan is a type of statutory stock option plan. If you participated in an 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.
- You may have to report compensation (Form 1040 (PDF), Line 7) and capital gain or loss (Schedule D (Form 1040) (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets) when you sell the stock.
- The amount of compensation and capital gain or loss depends on whether you satisfy the holding period requirement.
You satisfy the holding period requirement if you do not sell the stock until the end of the:
- The 1-year period after the stock was transferred to you, AND
- The 2-year period after the option was granted
You should receive a Form 3922 (PDF), Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c), from your employer when the employer has recorded the first transfer of legal title of stock you acquired pursuant to your exercise of the option. This form will assist you with the tracking of your holding period and your cost basis for the stock purchased through your qualifying plan.
Category: Capital Gains, Losses, Sale of Home
Subcategory: Stocks (Options, Splits, Traders)