The National Directory of Certified Public Accountants

Ask A CPA - Fringe Benefits

Employee Stock Options

The employer must report as income in Box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V" For more information about employee stock options, Speak to your local CPA or see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations.

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