Tax Forms Guide for Tech Workers

February 27, 2023 | By Jessica Goedtel, CFP®

Tax season is now upon us. Collecting tax documents can be a hassle, especially if you aren’t sure what you’re looking for. To save you some trouble, I’ve put together a quick guide on what to look for if you’re a tech worker with equity compensation.

All tax documents are important, but some are more important than others. That honor goes to the W2. You’ll receive this form from each employer you worked with during the tax year. It reports your wages, taxes withheld, 401k contributions, and more. We’ll dive in below on how this document ties into your equity compensation.

Make sure to send all pages of Form W2 to your tax preparer. The second page might look the same as the first, but often there are extra codes or state information needed to accurately file your return.

Along with tax documents from your employer, you’ll likely receive documents from your stock plan custodian. That’s the place where all your company stock is held. Each custodian does things a little bit differently, so there may be some digging involved.

RSUs (Restricted Stock Units)

You’ll have to report on your taxes any RSUs vested or sold in the current tax year. If you’ve only had a grant and nothing else, you’re free to go. Any RSUs that vested in the tax year will appear in Box 1 (Wages) on your W2. Some payroll companies will break this out even further by showing the amount in box 14.

If you sold any of your shares during the tax year or received any dividends, you’ll also receive a form 1099 from your stock plan custodian. You’ll get a 1099-DIV for dividends, a 1099-B for sales, or everything together in a 1099-Consolidated.

Check your sale transactions to see if the cost basis was recorded for each transaction. If any say 0, you’ve got some extra work. The information could be towards the end of the statement, or it might be on a separate statement entirely. Be on the lookout for anything that says “Supplemental.” Reach out to your custodian if you can’t locate the information.

ESPP (Employee Stock Purchase Plan)

You’ll get Form 3922 for any company shares you purchased in the tax year. Keep this for your records. For any shares you sold, you’ll receive a 1099-B as well.

When you sell ESPP shares within two years of the offering date and within one year of the purchase date, the discount you received is included in your income. This is called a disqualifying disposition and will also appear on your W2 (Box 14). This adjustment will not show up on your 1099-B. It might be included in supplemental information, or it might not be included at all. This often gets overlooked and people pay more in taxes than necessary. Talk to your tax preparer to make sure they understand how to handle this adjustment.

Non-Qualified Stock Options

Look out for Code V on your W2 if you exercised any shares this year. This will show the amount of ordinary income you earned from the exercise. If you also sold your shares, including a cashless exercise, you should also have a 1099-B showing the sale.

Unfortunately, you’re not done yet. Most of the time, your basis on the 1099-B will be incorrect. Check your exercise confirmations if the basis is zero or really low compared to the sale price. The actual basis should include the cost of the options, taxes, and brokerage commissions/fees. With a cashless exercise, you should show a small loss. If the basis isn’t correct, your tax preparer will need to make an adjustment to the basis. If not, you’ll be paying taxes on this money twice.

Incentive Stock Options (ISOs)

Any time you exercise ISOs, the first form you want to look out for is Form 3921. This will report some critical information, including the value and number of shares that were exercised. You’ll need this form if you hold your exercised shares. This information is used to calculate your Alternative Minimum Tax (AMT).

When you sell the shares you will also receive a 1099-B reporting the sale. This works the same as the non-qualified options above – you’ll need to make an adjustment. If you sold your shares in the same tax year, this will also show up on your W2 in Box 14 (usually as ISO DD).

Equity compensation can have many moving pieces. Worried you might be missing something? Schedule a complimentary call with me today to see how financial planning can help take the stress out of tax season.

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