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Filing Season 2022: IRS Form 1040 Changes Affect

stock options, RSUs and ESPPs

Do not get surprised. IRS tax reporting has changed once again for stock compensation and stock sales. Surprise! (Or maybe not). Tax return reporting has changed once again for the 2022 tax season. If you had income in 2021 from equity compensation, either from stock option exercises, restricted stock/RSU grants, or sales of company stock company, this article explains what you need to know about IRS tax returns in the 2022 filing season. The changes in summary

While the IRS Form 1040 for 2021 remains at 38 lines, changes have been made to its supporting forms. In 2018, the IRS condensed Form 1040 from its previous 79 lines in an effort to make it "postcard size." It changed many of those lines to support "schedules" that funnel information to Form 1040. The IRS has made changes to some of those schedules:

  • El Anexo 1 ("Additional Income and Adjustments to Income") is where you should enter (under the expanded entries for "Other Income") the amount of any stock compensation you earned as an employee that was erroneously omitted from your Form W-2. In the past, it was not clear where and how to declare this income.

  • El Anexo 2 ("Additional Taxes") now has dedicated lines for amounts from the tax form for the Additional Medicare Tax on Compensation Income and the tax form for Tax on Net Investment Income (for example, on profits). of capital and dividends from the company's shares).

  • El Anexo 3 ("Additional Credits and Payments") now has a specific line item for any previous minimum tax credits. This would apply to anyone with incentive stock options (ISOs) who have triggered the alternative minimum tax (AMT).

  • The totals from Schedule 1, Schedule 2, and Schedule 3 of Form 1040 appear on different lines on those schedules, but are entered on the same lines on Form 1040.

1040 Form Highlights

For stock compensation and stock sales income reporting, below are key aspects of the Form 1040 tax return and its associated schedules and forms, along with other details of the changes described above for the season. 2022 taxes.

1.Compensation. Stock compensation, along with wage income reported on Form W-2, is entered on Line 1 of Form 1040 (see image below).

2. Capital gain or loss. If you sold shares during tax year 2021, enter each sale on Form 8949 and report the total on Schedule D. Then report that total from Schedule D on Line 7 of Form 1040 (see image below). After three consecutive years in which the capital gains statement changed on Form 1040, it remains the same on the tax year 2021 return.

For stock sales, there are still no changes to the IRS rules for how cost-based information is reported on Form 1099-B and Form 8949. Brokers are prohibited from including equity compensation income as part of the cost basis reported on Form 1099-B. This creates confusion and complication on your tax return, since only the exercise cost (that is, what you paid for the stock) appears on the 1099-B. To avoid the risk of overpaying taxes, you must make an adjustment on Form 8949 .

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