How to Report Non-Qualified Vested Stocks

by Alexis Lawrence

Vested stocks are those stocks that have achieved full value to the stock owner. Qualified stocks, which employers may offer as incentives, do not have to be reported as income on taxes, even as they become vested. Non-qualified stocks, however, must be reported to the IRS as they become vested. Report non-qualified vested stocks on your yearly tax return, along with your other taxable income.

1. Wait for the W-2 from your employer before attempting to file your taxes. The W-2 contains some of the information that you need regarding the non-qualified vested stocks that you must report on your tax return.

2. Report the income listed next to “Wages” on the W-2 from your employer on line 7 in the “Income” section of tax return Form 1040. This total wage amount reported on the W-2 by your employer includes any amount of vested stock gifted to you by an employer. If you purchased stock shares through a stock option for $10, for example, when those stock shares were worth $20 on the stock market, the employer includes the $10 per share difference as part of your income.

3. List any fees for selling shares of vested stock on line 13, the “Capital Gain (or loss)” line, in the “Income” section of Form 1040 if you have an even sale or lose money when you sell the vested shares. If you sell some of the vested stock shares that you purchased through a stock option for the $20 they are worth on the day that you purchase them, for example, this is considered an even sale. Since you more than likely had to pay a transaction or broker fee to sell the stock, however, you may report the amount of this fee as a loss on line 13 by enclosing the number in parentheses to indicate a negative number.

4. List any profits made through the sales of vested stock during the year on line 13, the “Capital Gain (or loss)” line, in the “Income” section of Form 1040. If you sell stock shares that were worth $20 on the date of purchase for $30 later in the year, for instance, you must report the $10 per share gain, minus any broker fees you paid to make the sale. If you sell 10 shares of the stock at $30 and pay a $5 broker fee, you end up with $95 total profit. Write this on line 13 without parentheses to indicate a capital gain.

5. Complete the Schedule D form that goes with tax return Form 1040 if you had either a capital gain or loss from stock sales during the year. List each stock that you sold, the dates you purchased and sold the stock, the purchase and sales prices and tally the gain or loss in the final column. Attach this form to your tax return for proper processing.