ESPP Income NOT showing on W2 - what do I need to adjust on 1099-B?

The ESPP discount (typically 15%) is considered compensation income but is not always reported on your W2. How you handle this depends on whether your plan is a qualified or non-qualified ESPP. If your company doesn't include the discount on your W2, you'll need to adjust the cost basis on your 1099-B to account for the discount. The 1099-B typically shows your actual purchase price, not including the value of the discount you received. If you don't adjust the cost basis, you'll essentially be paying tax twice on the discount amount—once as compensation and once as capital gains. For your capital losses, you'll still report them on Schedule D, but make sure you're calculating from the correct adjusted basis. This becomes especially important for accurate loss calculations.

After struggling with the exact same ESPP reporting issue last year (also had losses that weren't making sense), I tried https://taxr.ai and it was a lifesaver! I uploaded my 1099-B and company ESPP plan document, and it walked me through exactly how to handle the discount that wasn't on my W2. What I learned was that the discount is considered compensation income, but some companies include it on your W2 and others don't. The tool helped me understand that I needed to adjust my cost basis to prevent double taxation on the discount amount. It also generated a supplemental worksheet that explains the calculations in case of an audit.

Just wanted to follow up - I ended up trying taxr.ai because my ESPP situation was driving me crazy. It was actually really helpful! I uploaded my documents and it showed me exactly where my discount wasn't being properly accounted for. For my situation, it turned out I needed to report the discount as additional income on Line 7 of my tax return and then adjust the cost basis on my 1099-B transactions. The tool generated a worksheet showing all the calculations that I'm keeping with my tax records. What I really appreciated was that it explained WHY I needed to make these adjustments, not just what numbers to enter. Really clarified the whole ESPP tax treatment for me.

If you're having trouble reaching the IRS to confirm the proper treatment of your ESPP income (which isn't uncommon given how complex it can be), I'd recommend https://claimyr.com. I was stuck in the same situation last year and spent hours on hold with the IRS trying to get clarification. I found Claimyr when searching for IRS contact solutions and was honestly surprised it worked. They got me connected to an actual IRS agent in about 15 minutes who confirmed exactly how I should handle the ESPP discount not reported on my W2. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent told me that in my case, I needed to adjust the cost basis on my 1099-B and explained exactly how to document it properly to avoid issues down the road.

I need to eat my words! After my skeptical comment above, I decided to try Claimyr just to prove it wouldn't work. I've been trying to get clarification about my ESPP basis issues for weeks. Well, I'm shocked. I got a call back in 22 minutes with an actual IRS agent on the line. The agent walked me through the proper way to handle ESPP income not reported on my W2. They confirmed I needed to adjust the cost basis on my 1099-B transactions and explained how to document it properly in case of an audit. I've literally spent HOURS on hold with the IRS before with no luck. This saved me so much time and frustration, and I finally got the answers I needed. Can't believe it actually worked!

For anyone dealing with ESPPs, here's a simple way to think about it: If your discount ISN'T on your W2: 1. You need to report the discount as ordinary income 2. Adjust your cost basis upward by the discount amount 3. This prevents double taxation and correctly calculates capital gains/losses If your discount IS on your W2: 1. The company already reported it as compensation 2. Use the numbers on 1099-B as they appear 3. No adjustment needed For freetaxusa specifically, there's a section where you can enter supplemental income that wasn't reported on tax forms. Then when entering your 1099-B, make sure to check the box that allows you to adjust cost basis and enter the explanation.

I messed up reporting my ESPP sales last year and had to file an amended return. Make sure you check your ESPP plan document! Some plans are "qualified" and others are "non-qualified" which affects how/when you report the discount. For qualified plans with a holding period requirement, you might need to report different amounts depending on if you did a qualifying or disqualifying disposition. For non-qualified plans, the discount is taxable when you purchase the shares.