At a glance:
- Employee stock transactions can produce ordinary compensation income, capital gains or losses, or both, depending on the plan and holding period.
- Calculate your gain or loss by subtracting your adjusted cost basis from the sales proceeds.
- Check your 1099-B for accuracy, compare it to your investment records, and adjust if necessary.
- Increase your basis for compensation attributable to the shares sold if that compensation is not already included in the basis. Form 8949 code B may apply.
Question
After entering information from Form 1099-B into my tax software, I think some employee stock compensation is being counted twice. Compensation related to the shares I sold already appears on my W-2, but the basis on my 1099-B may not include it. Do I need to adjust the basis when reporting the sale?
Answer
Generally, yes; if the basis on Form 1099-B leaves out compensation for those shares that is already included on your W-2. Include that compensation in your basis when reporting the sale so it is not taxed again as a capital gain. If your basis already includes it, do not add it again.
Your adjusted basis generally includes what you paid for the shares, plus compensation income related to those shares. It also includes any other required adjustments. Subtract that basis from your sales proceeds to calculate your capital gain or loss.
Check your W-2, stock-plan records, and broker’s supplemental statements before making an adjustment. The details depend on whether you sold ESPP shares, ISO shares, or shares acquired through nonqualified stock options.
ISO, ESPP, and nonqualified options
The type of stock plan and when you sell the shares determine how the income is taxed and what to include in your basis. Here’s how the rules differ:
· Nonqualified stock options. You usually recognize wage income when you exercise the option to buy shares. Your basis generally includes the exercise price plus that compensation, but Form 1099-B may show only the exercise price.
· Employee stock purchase plans (ESPPs). Some or all of your stock discount may be taxable as compensation when you sell. The amount depends on the plan and how long you held the shares. Add that compensation to your basis if it is not already included.
· Incentive stock options (ISOs). A qualifying sale typically produces capital gain or loss, without compensation income, for regular federal income tax purposes. This usually requires holding the shares for more than one year after exercise and more than two years after grant. A sale before those periods end may produce compensation income that increases your regular-tax basis.
ISOs also have separate alternative minimum tax (AMT) rules. Exercising ISOs and keeping the shares beyond that calendar year can create an AMT adjustment. This increases your AMT basis, not your regular-tax basis. You should keep records of both. If you exercise and sell in the same calendar year, no ISO exercise adjustment is required for AMT.
How to calculate your adjusted basis
Start with what you paid for the shares. Add compensation income related to the specific shares you sold, unless it’s already included in your basis. Include any other required basis adjustments.
Capital gain or loss = sales proceeds – adjusted basis
Use these records to check your calculation:
· Relevant W-2s, including earlier years if applicable.
· Form 3921 for ISO exercises.
· Form 3922 for applicable ESPP transfers.
· Your broker’s supplemental statements and stock-plan records.
Use only the compensation related to the shares sold, not all stock compensation on your W-2.
Where Form 1099-B comes in
Your broker generally sends Form 1099-B after the year you sell. Compare its basis information with your records.
When a basis correction is needed, you can report the sale on Form 8949, which flows to Schedule D. Then, select the appropriate short-term or long-term section and the checkbox showing whether the basis was reported to the IRS.
If basis was reported to the IRS: Enter the broker’s reported basis in column (e). To correct a basis that leaves out compensation, enter code B in column (f) and a negative adjustment in column (g).
For example, if the broker reported $2,000 but your correct basis is $2,500, enter:
· Column (e): $2,000
· Column (f): B
· Column (g): -$500
If the basis was not reported to the IRS: Enter your correct adjusted basis directly in column (e). If Form 1099-B shows an incorrect basis, also enter code B in column (f) and zero in column (g), unless another adjustment applies. If the form shows no basis, the absence of a basis alone doesn’t require code B.
Don’t subtract compensation reported on your W-2 from your sales proceeds. Instead, account for it through your basis. Be sure to follow your software’s prompts carefully so you don’t apply the same adjustment twice.
Reporting details to keep in mind
You will generally need the description of the shares sold, the acquisition date, the sale date, the sales proceeds, and the adjusted basis. Form 1099-B may omit the acquisition date or basis, so keep records that support those details.
Enter any federal income tax withheld from Form 1099-B in your software’s withholding field. Withholding does not change your basis.
The bottom line
If compensation for the shares you sold is already in your income but missing from the broker’s reported basis, adjust the basis when you report the sale so you are not taxed twice on the same wages. If your basis already includes that compensation, don’t add it again. Additionally, for ISO shares, check whether a separate AMT basis applies when you sell.
This article is for informational purposes only and not legal or financial advice.
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Citations
Internal Revenue Service. “About Form 3921, Exercise of an Incentive Stock Option Under Section 422(b).” Internal Revenue Service, 7 June 2026, www.irs.gov/forms-pubs/about-form-3921. Accessed 22 Oct. 2026.
Internal Revenue Service. “About Form 3922, Transfer of Stock Acquired Through An Employee Stock Purchase Plan Under Section 423(c).” Internal Revenue Service, 7 June 2026, www.irs.gov/forms-pubs/about-form-3922. Accessed 22 Oct. 2026.
Internal Revenue Service. “Instructions for Form 8949 (2025).” Internal Revenue Service, www.irs.gov/instructions/i8949. Accessed 22 Oct. 2026.