Stock Plan Services FAQs: Taxes

Most tax forms, unless otherwise noted, are posted online by the IRS deadline of February 15. (If the 15th is a holiday or weekend day, the deadline is the next business day.) You can view and download your available tax forms hereLog In Required and get updated information on the status of any outstanding forms.

To learn more about any recent changes for preparing your tax return, please see What's New for This Tax Season (PDF).

One benefit of being a Fidelity customer is access to some of the most comprehensive tax information and resources available in the industry. Tax information specific to your stock plans can be found at the Taxes and tax-filing page.

You can also find a wealth of resources at Tax Information, including:

• Tax articles
• Tax planning tools and calculators
• Fidelity's tax forms, mailing schedule, and much more

You may be able to direct deposit your IRS or state tax refund into your Fidelity account(s). Learn more at Direct Deposit Your Tax Refund.

Information from the following Fidelity non-retirement account tax forms can be automatically imported into your third-party tax preparation software:

• 1099-DIV Dividends and Distributions
• 1099-MISC Miscellaneous Income
• 1099-INT Interest Income
• 1099-OID Original Issue Discount
• 1099-B Proceeds from Broker and Barter Exchange Transactions

Note that if you received a Fidelity Supplemental Information form, this information will not be imported into your third-party tax preparation software. For more information, refer to Fidelity's stock plan guides at the  Taxes and tax-filing page.

U.S. tax laws and reporting requirements vary based on your stock plan and what you do with the shares of company stock you receive. To learn more, review the tax treatment guidelines (PDF) for a general overview of what taxes apply, when they are withheld, and how they are reported.

When you take ownership of your stock plan shares, you are being "paid" with stock and may have ordinary income taxes due. This could also occur when you purchase shares at a discount through an ESPP.

The taxes due are generally covered through withholding or payment at the time they are distributed to you, although the withholding requirement can vary based on the type of stock compensation or ESPP. These are the same type of taxes you see withheld from your regular paycheck and will be reported on your W-2. Typically, they are made up of federal income tax and FICA taxes (Social Security and Medicare); they can also include any state or local taxes.

The methods for income tax withholding are determined by your employer and the rate is based on the rules for supplemental wage income. For example, with restricted stock units, the value of the shares at vesting is considered the ordinary compensation income, and tax withholding is generally required at that time. For more on withholding and the differences by type of grants or ESPP, see the tax treatment guidelines (PDF) or visit the Taxes and tax-filing page.

Cost basis is the value you paid for your shares (generally, the purchase price) plus or minus certain adjustments. It is a key component of the equation used to calculate your reportable gain (or loss) on the sale of stock.

Sale Price—Cost Basis = Reportable Gain (or Loss)

With stock plans, adjustments may be needed to determine the correct cost basis amount. Your employer reports any ordinary income related to your stock compensation on your W-2. This generally means you’ve already paid taxes on the value of the shares and this is part of your “purchase” price.

During tax season, Fidelity will issue two forms you will need for cost basis information:

• Form 1099-B (an IRS form)
• Supplemental Information form (a special form Fidelity prepares to help you)

The cost basis reported on Form 1099-B reflects the purchase price only and doesn't account for income reported by your employer. The IRS rules do not allow brokers to report the adjusted cost basis that includes the compensation income, but Fidelity includes this information on the Supplemental Information form. If the cost basis is reported incorrectly on your tax return, you could potentially pay too much in taxes when you file your return, so it is important to have all your tax forms when filing.

To learn more about tax reporting for stock sales, review What is Cost Basis? (Video: 3:38) and the Taxes and tax-filing page.

A capital gain (or loss) is the difference between your sale price and your cost basis. If you sell stock for more than you paid for it, you recognize a gain. If you sell it for less than you paid for it, it is considered a loss. How much of that gain (or loss) you report depends on your cost basis.

For shares that you received through a stock plan, it is important to note that you may need to make adjustments to your cost basis to correctly calculate any capital gains or losses.

To learn more about how capital gains work for your stock plan shares, refer to Fidelity’s stock plan guides at the Taxes and tax-filing page.

Your employer reports compensation paid to you on Form W-2 (or Form 1099-MISC for nonemployees). If Fidelity receives data on your ordinary income from your employer, this amount will be reflected on the Stock Plan Supplemental Form. We report proceeds from the sale of stocks, mutual funds, bonds, and notes on Form 1099-B.

You need all this information for your taxes, as it is your responsibility to report gains or losses from stock sales on Form 8949 and Schedule D.

For more information about what forms you will receive for your stock plan shares, visit the Taxes and tax-filing page.

Depending on the type of award you have, you may receive dividends or dividend equivalents for your unvested shares. A dividend is a sum of money paid on the stock you own. If you have RSAs, you are usually entitled to the dividend payouts from your shares, even if they are unvested. If you have RSUs or other types of restricted awards, you are not entitled to the dividends, but your plan may still give you a payout that is the “equivalent” of what you would have received on the unvested shares.

When dividend equivalents are paid at vesting through additional shares or cash, withholding applies at that time, they are reported as part of your ordinary W-2 compensation income. With nonemployees, such as directors and independent contractors, this income is reported on Form 1099-NEC.

Should a cash dividend payout occur before vesting, this compensation income will be taxed, and withholding applies at the time of payout.

The main difference between ISOs and NSOs is how they are taxed. Shares from an ISO can “qualify” for beneficial tax treatment depending on when you sell. Shares from an NSO exercise will be taxed at your regular income rates.

With an ISO, you will not be subject to tax at the time of exercise and no withholding or Social Security/Medicare tax applies. This is because your shares can be eligible for beneficial tax treatment, so you don’t know what types of taxes you will have until you sell the shares that result from the exercise.

When you sell your ISO shares from the exercise, your entire gain (or loss) over the exercise price will be treated as a capital gain (or loss) provided the shares are held for the required holding period. This is called a qualifying disposition.

To receive beneficial treatment, the shares must be held for:

• More than one year from the exercise date.
• More than two years from the grant date.

If shares are sold before these holding periods end, you will have what is called a disqualifying disposition and the shares will not receive beneficial tax treatment and will be taxed similarly to an NSO, but with no withholding or Social Security/Medicare tax.

It’s important to remember that alternative minimum tax, or AMT, may apply when you hold the ISO shares through the calendar year of exercise. AMT is an alternative method for calculating your taxes that is triggered by specific events, such as the exercise of an ISO.

ISO taxes can be complicated, so it is important that you consult a tax advisor regarding your personal tax situation.

In contrast, when you exercise an NSO, the difference between the fair market value at exercise and the grant price —also known as the “spread”— will be treated as ordinary compensation income. Your employer will generally be required to withhold taxes at the time of your exercise. When you sell the shares you received from the exercise, your subsequent gain or loss will be subject to tax as a capital gain (or loss).

For additional information, visit the Taxes and tax-filing page.

The shares you purchase through a qualified ESPP can be eligible for beneficial tax treatment. Your shares can “qualify” for this special tax treatment or be considered “disqualified” depending upon when you sell and if certain holding periods have been met. This special treatment will determine whether the income from your sale is taxed at ordinary income rates or at the more favorable capital gains rates.

To receive beneficial tax treatment, the purchased shares must be held for:

• More than one year from the purchase date. This holding period requirement also meets the holding period required for long-term capital gains.
• More than two years from the offering date (the date the offering period begins).

When shares are sold after meeting both holding periods, it is considered a qualified disposition and will receive favorable long-term capital gains tax treatment on a portion of the gains.

When shares are sold before meeting both holding periods, it is considered a disqualifying disposition and the shares will not receive special tax treatment. You will be required to report ordinary income equal to the difference between the fair market value of the stock at the purchase date and the actual purchase price. To learn more, review ESPP: Qualifying and Disqualifying Dispositions (PDF).

A wash sale occurs when you sell shares at a loss and buy additional shares of the same or substantially identical security within a 61-day period. This period begins 30 days before the sale and ends 30 days after the sale, including the date of the sale. If the sale results in a wash sale, generally you will not be able to deduct the resulting loss from your taxes. Instead, the loss and the holding period will be carried over to increase the cost basis of the new shares.

Sales of stock received in an ISO exercise raise additional issues under the wash sale rules. For assistance with completing your tax return, please consult your tax advisor.

Cash-settled transactions result in no sale of stock; instead, you are given the cash value of the stock. As there is no stock sale, no Form 1099-B is issued or required. As a result, your W-2 or 1099-NEC will show the income from the transaction.