Just wanted to add another perspective as someone who works in payroll/benefits administration. The reason your employer didn't handle this on your W-2 is likely because they weren't the ones directly providing the prize - the sponsoring company was. When a third-party provides prizes or awards to employees (even through workplace programs), they're required to issue the recipient a 1099-NEC if the value exceeds $600. Your employer probably couldn't include it on your W-2 because they didn't actually pay for or provide the vacation package themselves. This is actually pretty standard for employee recognition programs that involve external sponsors. The tax treatment is the same either way - you'd owe income tax on the $6,500 whether it came via W-2 or 1099-NEC. The important thing is just making sure you report it as "Other Income" on Schedule 1 rather than business income so you avoid unnecessary self-employment taxes. Congrats on the recognition and the amazing trip, by the way! Even with the tax implications, that's still an incredible benefit.

I'm a tax professional and wanted to clarify a few important points about 1099-NEC forms for prizes that I see causing confusion in this thread. The 1099-NEC is absolutely the correct form for your situation. Any business that pays a non-employee $600+ must use this form, whether for services OR prizes/awards. The form name "Non-Employee Compensation" is misleading because it covers more than just contractor payments. For tax purposes, you have two main options for reporting this $6,500: 1. Schedule 1, Line 8 (Other Income) - RECOMMENDED for prizes/awards. You'll pay only regular income tax. 2. Schedule C (Business Income) - ONLY if you provided services to earn this "prize." You'd pay income tax PLUS 15.3% self-employment tax. Since this was clearly a workplace recognition prize (not payment for services), definitely use Schedule 1. The sponsoring company did everything correctly - this is standard practice for third-party prize providers. One last tip: Keep documentation showing this was a prize/award, not payment for work, in case the IRS ever questions the reporting method you chose.

Don't forget about state taxes too! Depending on your state, you might face state-level AMT or simply income tax on the spread. California for example has both a state AMT and high income tax rates, which makes ISO exercises even more expensive.

Based on your numbers, you're looking at a substantial AMT hit - potentially $180K-250K as others mentioned. One critical timing consideration: since you're planning to leave in the next few months, make sure you understand your company's post-termination exercise window. Most companies give you 90 days after termination to exercise, but some are shorter. If you do decide to exercise and hold, consider making quarterly estimated tax payments starting immediately. The IRS expects you to pay taxes throughout the year, not just at filing time. With an AMT liability this large, you could face significant underpayment penalties if you wait until April to pay. Also worth noting - if your company stock price drops significantly between now and when you actually sell the shares (even if you hold for LTCG treatment), you could end up in a situation where you paid AMT on a higher spread than you ultimately realized. This is the dreaded "AMT trap" that caught many people during the dot-com crash. The AMT credit helps, but it doesn't fully offset this scenario. Consider consulting with a tax professional who specializes in equity compensation before making any moves. The cost of good advice here could save you tens of thousands.

Don't forget to check if either partner had a negative capital account before the final distribution! This can create unexpected tax consequences. If one partner's capital account went negative during operations (meaning they took out more than they put in plus their share of profits), that negative balance is treated as income to that partner when the partnership dissolves. Also, make sure you file Form 8594 (Asset Acquisition Statement) if the partnership is selling any assets as part of the dissolution. And don't forget to file Form 966 to formally dissolve the entity with the IRS.

One more thing - check if either partner had any unreimbursed business expenses (UBE) they paid personally. These can be reported on Schedule E of their personal returns rather than being treated as capital contributions on the K-1. This is often better tax treatment since capital contributions don't directly reduce tax liability but UBEs can.

Just wanted to add my experience for anyone else in a similar situation. My husband and I had almost identical incomes ($88k and $92k) when we got married last year, and we initially made the mistake of not updating our W4s at all - we kept our old "single" status. Come tax time, we ended up owing about $3,200 because our employers were still withholding at the lower married rate but calculating as if we were the only income earners. It was a expensive lesson! This year we both checked box 2(b) as recommended here, and also used the IRS Withholding Estimator tool that StarSurfer mentioned. The estimator suggested we each add an extra $50 per paycheck in box 4(c) to be safe. Much better to get a small refund than owe a big chunk again. For what it's worth, we definitely save money filing jointly compared to separately - even with the withholding adjustments, our overall tax burden is lower than it would be as two single filers.

This is exactly the kind of situation where getting the W4 right makes a huge difference! As someone who works in tax preparation, I see this scenario all the time with newly married couples. Since you and your wife have very similar incomes ($95k and $91k) and each only have one job, you're in the perfect situation for option 2(b). Both of you should check this box on your respective W4 forms. This tells both employers to withhold at the higher single rate rather than the lower married rate, which helps account for your combined income pushing you into higher tax brackets. One thing I'd definitely recommend is running your numbers through the IRS Tax Withholding Estimator after you both submit your updated W4s. Since you got married in October, you'll have had single withholding for most of the year, which might mean you need less additional withholding than couples married all year. And yes, married filing jointly will almost certainly be better for you financially than filing separately - the standard deduction is higher and you'll have access to more credits and deductions. At your combined income level (~$186k), you won't hit the marriage penalty thresholds that affect higher earners.

Has anyone actually tried calling their brokerage about this? I talked to Fidelity last month about this exact issue because I wanted to use dividents without touching principal, and they told me something different.

I work as a tax preparer and see this confusion about Roth IRA dividends constantly during tax season. The bottom line is that dividends earned within a Roth IRA cannot be separated from other earnings for withdrawal purposes - they all get lumped together as "earnings" by the IRS. Here's what happens: When dividends are paid inside your Roth IRA, they increase your total earnings balance. If you withdraw ANY amount beyond your contributions, the IRS treats it as coming from earnings first (after contributions are exhausted), regardless of whether you think you're "just taking the dividends." The 5-year rule clock starts January 1st of the tax year for your first contribution. So if you first contributed in 2020, your 5-year period ends January 1, 2025. You need both the 5-year rule AND to be 59½ to take earnings (including dividends) tax and penalty-free. One thing I tell clients: if you need current income from investments, consider keeping dividend-paying stocks in a taxable account instead, where you can access the dividends immediately and only pay the qualified dividend tax rate (usually 0-20% depending on your income).