Is Your ESPP Stock Sale Already on Your W-2? Report the Sale and Fix the 1099-B Basis

At most, your W-2 may include the ordinary-income part of an employee stock purchase plan (ESPP) sale, usually some or all of the purchase discount. You still report the sale on Form 8949 and Schedule D, because your broker reports the proceeds to the IRS on Form 1099-B. Its basis figure often omits the amount taxed as wages, so copying it unchanged can tax the discount twice; leaving the sale off the return invites an IRS adjustment for the full broker-reported gain.

That second mistake is what happened in Moiseshyn v. Commissioner, T.C. Memo. 2026-114 (Nov. 4, 2026): the Tax Court sustained tax on $32,146.74 of ESPP gain a couple left off their 2021 return because, they said, their preparer believed it was in the W-2.

Three forms, three different jobs

Form 3922 comes from the company, for discounted plan purchases, for the year legal title to the shares is first transferred, often by deposit into your brokerage account. It lists the grant, purchase and transfer dates, the stock’s value at grant and purchase, and the price you paid per share: the numbers you need to figure the ordinary income. Keep it. (Instructions for Forms 3921 and 3922.)

Form 1099-B comes from the broker for the year you sell, with the proceeds and often a basis figure the broker may also report to the IRS.

Form W-2 should show the ordinary income from the sale as wages in Box 1, according to IRS Publication 525. No income tax withholding is required on that amount (26 U.S.C. § 423(c); § 421(b)), so a sale can leave a balance due even when reported correctly.

Work out the ordinary-income piece

The wage amount depends on how long you held the shares. Under section 423(a)(1), a sale is a qualifying disposition only if both periods have passed: more than 2 years after the option was granted and more than 1 year after the shares were transferred to you. A sale before the later of those dates is a disqualifying disposition.

• Disqualifying disposition: Ordinary income is the stock’s value on the purchase date minus the price you paid. This amount is not limited to your gain on the sale.
• Qualifying disposition with a discount: Ordinary income is the smaller of (1) the stock’s value when the option was granted minus the option price, or (2) the value when you sold minus what you paid. If you sold at a loss, there is no ordinary income. If the option price was not fixed or determinable at grant, calculate (1) as if the option had been exercised on the grant date; Form 3922 box 8 supplies that price.

Everything above that is capital gain or loss. In Publication 525’s example, 100 shares are bought at $20 a share when the stock was worth $22 at grant and $23 at purchase, then sold for $30:

Fix the broker’s basis on Form 8949

The Form 8949 instructions say to report the 1099-B proceeds, and the basis shown if the broker reported it to the IRS. For compensatory options granted after 2013, that basis will not reflect any amount you included in income, so you increase basis by that amount.

In the disqualifying example, the 1099-B would show $2,000 of basis, the price paid; the correct basis is $2,300, including the $300 taxed as wages. If the broker reported basis to the IRS, enter $2,000 in column (e), code B in column (f) and ($300) in column (g), leaving a $700 gain. If it did not (box B or E), enter $2,300 in column (e), code B in column (f) and -0- in column (g). Because of the adjustment, the sale goes on Form 8949, not straight onto Schedule D.

Confirm what the W-2 actually includes

Before filing, check your ordinary-income figure against the employer’s year-end pay statement or another written statement showing ESPP income in Box 1. If the employer left it out, Publication 525 (for 2025 returns) says to report it on Schedule 1, line 8k; check the line numbers for the year you are filing. In Moiseshyn, a broker handout saying ESPP income was “usually” in Box 1 was not enough without a 2021 pay statement or other Medtronic record.

If the IRS has already matched the 1099-B

When the IRS’s match of Forms W-2 and 1099 against your return finds a gap, it may send a CP2000, a proposal rather than a bill. Under IRS Tax Topic 652, if you do not respond by the date on the notice, the IRS will send a statutory notice of deficiency.

If the case reaches the Tax Court, an undisputed Form 1099 can be enough to put the burden on you, as it was in Moiseshyn. Section 6201(d) requires more from the IRS only if you reasonably dispute the form’s accuracy and have fully cooperated; saying the income was reported elsewhere is not that dispute.

The useful response is documentary: Forms 3922 and purchase confirmations for the correct basis, a pay statement or employer letter showing what Box 1 included, and a corrected split between ordinary income and capital gain. Our case analysis of Moiseshyn covers the court’s reasoning.