TaxesSeptember 1, 2026· 8 min read
The four phases of an ESPP, and what each one means
An employee stock purchase plan is taxed at sale, not at purchase. A New York CPA on the two clocks, and the basis adjustment brokers leave out.
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Section 01
Understanding Stock Option Taxation
As the year concludes, it’s time to tackle your taxes. If you exercised ESPP stock options, you might notice them on Form 1099-B with an insufficient cost basis, which can lead to tax liability in TurboTax. You may think, “But I already paid taxes on these as part of my W-2 compensation.” So, how can you confirm the taxes you’ve paid?
Check Your W-2 for ESPP Information
Start by examining Box 14 of your W-2. Look for the term “ESPP” and a number. Not all payroll companies provide this detail, and sometimes even the same company may vary in how they report it. If you see this number, it indicates the total ESPP compensation added to your paycheck. This information helps you avoid paying taxes twice.
Link W-2 for ESPP Information to Form 1099-B
Then, adjust the shares’ basis on Form 1099-B to include the ESPP amount from your W-2. This step is crucial but can be tricky. Fortunately, if your company provides Form 3299, you can use it to calculate the correct basis for your shares.
Calculate the Correct Basis
To determine the correct basis, first, multiply the number of shares granted by the exercise price listed on Form 3299. Next, multiply this by the fair market value (FMV) per share on the exercise date. The resulting difference should match the ESPP amount on your W-2, proving that this amount was included in your wages and taxed.
Additional Tips
Remember, tracking the CUSIP or account number can be challenging. However, if ESPs are exercised and sold in the same year, use the number of shares exercised on the grant date to cross-reference between Form 3299 and 1099-B.
Dealing with these complexities requires expertise gained from handling many similar returns and connecting various details. If you face these issues, don’t hesitate to contact us for assistance. Hopefully, this guide clarifies some aspects and aids your analysis.
Thank you for reading.
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