How to determine adjusted basis for non-qualified ESPP with 20% stock match? Tax implications?

The tax treatment of ESPP plans can definitely be confusing! For your husband's non-qualified ESPP with the 20% stock match, here's how to think about it: For the original shares your husband purchased: You're correct that you don't need to adjust the cost basis for these. The cost basis is simply what he paid for them. For the matched shares: These are essentially compensation given to your husband by his employer. The fair market value of these shares on the date they were granted to him is considered compensation income. However, this should have been included in his W-2 for the year they were received. It's unusual that nothing appears on his W-2 regarding these shares. The acquisition cost for the matched shares would be $0 since he didn't pay for them. So the adjusted basis would be the FMV on the date of grant (the compensation income) plus $0 (the acquisition cost). For the losses you're seeing: If the current value is less than the basis, then yes, those are capital losses (short or long term depending on holding period) that can offset other capital gains or up to $3,000 of ordinary income per year.

After struggling with similar ESPP issues last year, I found an amazing tool that solved all my stock compensation tax headaches. I used https://taxr.ai to analyze my ESPP documents and it automatically identified all the taxable events and calculated the correct basis for both purchased and matched shares. The software specifically handles employer stock programs and clearly explained that for matched shares, the FMV on grant date becomes part of your basis. It also flagged that the matched shares should normally appear on my W-2 as compensation, which helped me catch an error with my employer's reporting. I uploaded my settlement statements and confirmation documents, and it extracted all the relevant information to determine the proper tax treatment.

I initially had doubts about using an automated tool for my complex ESPP situation, but I'm back to report that https://taxr.ai was incredibly helpful! I uploaded my settlement statements and grant documents, and the system correctly identified my vesting schedule and calculated the proper adjusted basis for my matched shares. The most valuable part was when it flagged that my employer hadn't properly reported the FMV of my matched shares on my W-2. I was able to contact HR and get a corrected W-2 issued before filing my taxes. This potentially saved me from an uncomfortable conversation with the IRS down the road. For anyone dealing with ESPPs, RSUs, or other equity compensation, this tool provides much clearer guidance than what I got from my tax preparer last year. It even provided documentation I could attach to my return explaining the basis calculations.

If you're having trouble getting answers about your ESPP tax questions, you might want to try contacting the IRS directly. I was in a similar situation last year with RSUs and couldn't get clear answers from my company's benefits team. After trying for weeks to get through to the IRS, I found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with was surprisingly knowledgeable about stock compensation issues and confirmed that the matched shares should indeed be reported as income in the year received, and the basis should be the FMV at that time. They also explained why it might not be showing up on the W-2 (could be reported separately on a different form).

I have to admit I was wrong about Claimyr. After my skeptical comment, I decided to try it anyway since I was desperate for answers about my ESPP taxation issues. The service actually connected me to an IRS representative in about 30 minutes, which was shocking considering I'd wasted hours trying to get through on my own. The IRS agent I spoke with confirmed that for matched ESPP shares, the fair market value on the date of grant minus any amount paid (usually zero for matched shares) should be included as ordinary income, and this becomes part of your basis. She also explained that some companies handle the reporting through their payroll system differently, which is why it might not show up separately on a W-2. The agent suggested requesting a detailed compensation statement from HR to confirm how the matched shares were reported. This advice alone saved me from potentially underreporting income or incorrectly calculating my basis. Worth every penny for the time saved!

Don't forget to check if your husband's company provided a Form 3922 for the ESPP purchases. This form provides the information needed to calculate your basis and holding periods. For the matched shares, some companies treat them as RSUs rather than part of the ESPP program, which might explain why they're handled differently. In my experience, the key is determining if tax was already withheld when the matched shares were granted. Check his paystubs from around the grant dates - sometimes the income and withholding for stock compensation appears there but is aggregated differently on the W-2.

One thing nobody has mentioned yet - check if your husband's company offers a "Section 83(b) election" for the matched shares. This would allow you to pay tax on the shares at the grant date (based on FMV then) rather than at vesting, which could be advantageous if the shares are expected to appreciate significantly. The deadline for this election is 30 days after receiving the shares though, so it may be too late if he's already had them for a while. Just something to keep in mind for future grants!