Tax Filing Basics for

Stock Plan Transactions 

Tax reporting for stock plan transactions can be TABLE OF CONTENTS

confusing. Understanding the Internal Revenue 2 Tax Documents You Will Need

Service (IRS) regulations along with knowing which 3 How to Calculate Your Cost Basis
5 Steps to Report Your Transaction
IRS Forms must be filed can be overwhelming. 8 Terms You Should Know

If you sell stock as a result of participation in your 8 Have Questions?

company’s stock plan, you may need to:

• Refer to the cost basis provided by Morgan Stanley
• Make any adjustments to it, if necessary
• Determine whether you have realized a capital
gain or loss
To simplify the process, here is some basic information
you may need for a less stressful tax season.

Important Note: This guide is not intended to be comprehensive tax advice or replace the advice
of a tax advisor. We recommend you seek the counsel of a certified tax professional to obtain
personalized and comprehensive guidance.
TAX FILING BASICS FOR STOCK PLAN TRANSACTIONS

Tax Documents You Will Need

You may need various documents and forms to report your stock plan transactions on your tax return.
The table below lists the tax forms, what they’re used for and how to obtain them.

FORMS WHAT IS THE FORM FOR? HOW DO I OBTAIN IT?

Company Form   Form W-21 Form W-2 is the Wage and Tax Statement Your company will
from your employer. send this to you.

IRS Forms   IRS Form 8949 IRS Form 8949 is used to report sales and Visit your local IRS office
other dispositions of capital assets to the IRS. or call 800-TAXFORM.
Go to www.irs.gov.

 Schedule D Schedule D (Form 1040) is used to report

(Form 1040) your Capital Gains and Losses to the IRS.

Morgan Stanley   Form 1099-B2 Morgan Stanley’s IRS Form 1099-B reports any
Forms sale transactions completed during the year and
backup withholding applied to the transaction
(if any).
You may receive more than one Form 1099-B
from Morgan Stanley.
  Form 1099-DIV Form 1099-DIV shows any reported dividend
payment received throughout the year.
Morgan Stanley generally sends this to
you by February 15 of the year following
your transaction.
Go to www.stockplanconnect.com.
From the home page, select: Documents
> Tax Documents, or Tax Resources
> Documents

  Form 480.6A Form 480.6A reports dividend income and/or

(Puerto Rico gross proceeds less commissions and fees. The
residents only) numbers reported on the 480.6A are the same
amounts that the firm reports to the IRS on
Forms 1099-DIV and 1099-B.

Depending on the type of stock plan transaction, Morgan Stanley may send the following documents.

Restricted Stock/Units You will receive a … ​

Release Confirmation and
Sell-to-Cover or Sell-all-Shares Year-End Stock Plan Summary

Stock Options Exercise You will receive a … ​

Cashless Exercise (Exercise and Sell) Exercise Confirmation and
Year-End Stock Plan Summary
(Sell-to-Cover)

Employee Stock Purchase Plan (ESPP) You will receive a … ​ Confirmation and
Sell Share(s) From ESPP Quarterly Account Statement

Restricted Stock Long Shares You will receive a … ​ Confirmation and
Sell Long Shares From Your Account Quarterly Account Statement

Confirmations are received at the time of the transaction.

Note: If you’ve received a distribution of funds from a Restricted Cash Plan Vesting, the income and taxes will be reported on your W-2 from your
company. Morgan Stanley does not report on this type of transaction. Please contact your company with any questions.
 If you are not an employee but received compensation, the company will send a 1099-MISC instead of a Form W-2.
1

2
 Keep in mind, not all transactions generate a 1099-B.

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 TAX FILING BASICS FOR STOCK PLAN TRANSACTIONS

How to Calculate Your Cost Basis

Any gain or loss you realize from the sale of shares from an equity compensation
plan will need to be reported on your Federal Income Tax Return. To determine if
you had a gain or a loss, you will need to know the cost basis of the shares, which
will be provided to you by Morgan Stanley. When available, Morgan Stanley can What is cost basis?
provide the original purchase price to assist in making this calculation. In addition,
Cost basis refers to the cost
you may need to adjust the cost basis to reflect any compensation income reported
of shares used to calculate
by your employer.
gains or losses for tax purposes.
It is important to understand how to calculate and report cost basis when filing
your taxes. Morgan Stanley will report the cost basis to the IRS for transactions
considered “covered” under IRS cost basis reporting regulations. Whether a
transaction is “covered” or “noncovered” is determined by the type of security and What does covered
the year acquired. You will see this identified on Morgan Stanley’s Form 1099-B. It vs. noncovered mean?
is possible to have both covered and noncovered transactions in the same security.
Covered means the transaction’s cost
Regardless of the covered or noncovered status of a transaction, an adjustment to basis must be reported to the IRS
the basis may need to be reported on IRS Form 8949 and Schedule D of Form by Morgan Stanley. If noncovered,
1040. Refer to the instructions on the next page for assistance in calculating Morgan Stanley is not required to
cost basis.3 report the cost basis.
3
 Your cost basis in your shares may differ depending on your particular facts and circumstances,
including whether a section 83(b) election was made or the timing of vesting. Please consult your
tax advisor to determine the accurate cost basis in your particular circumstances.

Don’t Forget Wash Sales

Wash sales need to be reported on IRS Form 8949 and Schedule D. A wash sale
occurs when shares of a security are sold at a loss and “substantially identical” shares
are purchased within 30 days before or after the sale. The loss is disallowed and must
be added to the cost basis of the newly purchased shares.
You will receive
Morgan Stanley will report wash sales only for transactions occurring within a
single Morgan Stanley account. Since a wash sale can be triggered by activity within multiple 1099s if:
multiple accounts, either at Morgan Stanley or at another brokerage firm, it is • You sell long shares acquired
critical that you review all transactions in company stock. Seeking advice from a tax through your equity plan and
advisor is recommended. complete a stock plan transaction.
• You sell long shares within
more than one Morgan Stanley
brokerage account.

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TAX FILING BASICS FOR STOCK PLAN TRANSACTIONS

Instructions for Calculating Cost Basis

1
Find your Grant/Award
type and transaction
type in Column A.
2
Refer to Column B to see
the cost basis reported
on Form 1099-B.
3
Determine if an adjustment
4
Consider if a “wash sale”
is necessary in Column C applies to you.
and how it is calculated.

Column A Column B Column C

Grant/Award Type and Transaction Cost Basis Shown How to Adjust Cost Basis for
Taking Place in Your Stock Plan Account on Form 1099-B Form 8949 and Schedule D

Restricted Stock

Sell-to-Cover (STC)/Sell-All-Shares (SAS) Fair Market Value (FMV) at Vest: Not Applicable
at the time the shares vest (Number of shares sold x FMV)

Sell long shares post-vest FMV at Vest4: Not Applicable

(Number of shares sold x FMV)

Incentive Stock Options (Cashless Exercise / STC)

Qualifying Disposition Grant Price: Not Applicable

(Number of shares sold x Grant Price)

Disqualifying Disposition Grant Price: Lesser of:

(Number of shares sold x Grant Price) 1. The spread between the grant price and the FMV on
exercise date; or
2. The actual gain (amount realized on the sale less the
aggregate grant price).

Nonqualified Stock Options (Cashless / STC)

Cashless Exercise5 Grant Price: Calculate the difference between the Sale Price and the
(Number of shares sold x Grant Price) Grant Price multiplied by the number of shares sold.

STC Grant Price: Calculate the difference between the FMV Price at
(Number of shares sold x Grant Price) exercise and the Grant Price multiplied by the number
of shares sold.

Employee Stock Purchase Plan

Qualifying Disposition (§ 423 Plan) Purchase Price: Lesser of:

(Number of shares sold x 1. The amount of the discount based on the grant date
Purchase Price) FMV multiplied by the number of shares acquired; or
2. The sales price per share minus the actual price paid
per share times the number of shares (or total gain).

Disqualifying Disposition (§ 423 Plan) Purchase Price: The spread between the purchase price and the FMV
or non-§ 423 Plan with a discount (Number of shares sold x of the stock on the purchase date.
Purchase Price)

Nondiscounted Plan Purchase Price: Not Applicable

(Number of shares sold x
Purchase Price)

Stock Settled SARs

STC FMV: (Number of shares sold x FMV) Not Applicable

Net Exercise and Remaining Shares Sold
4
Assuming no Section 83(b) election was made.
5
If your company is enabled for 1099-Relief, you will not receive a 1099-B for your cashless exercise(s) as your company will report this information
on your W-2.

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 TAX FILING BASICS FOR STOCK PLAN TRANSACTIONS

Steps to Report Your Stock Plan Transaction

Once you understand cost basis, you are
ready to work on your tax return. There are
five main steps to the process. To illustrate
these steps, we’ll walk through an example
of a Restricted Stock Award release with a
Sell-All-Shares transaction.
Step 1
Start by referring to the tax document
Morgan Stanley sent to you. This will
show you the transaction amount subject
to taxation and the amount applicable
for withholding.
In this example, you would refer to your
Release Confirmation (Exhibit 1a and b)
to find these numbers:
a   $100,281.85 – taxable compensation
b   $24,418.63 – tax withholding

EXHIBIT 1

Hypothetical example. For illustrative purposes only.

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TAX FILING BASICS FOR STOCK PLAN TRANSACTIONS

Step 2 EXHIBIT 2

Compare the taxable amount to your

Form W-2, which reflects your wages,
tips and other compensation amount.
In this example, see box 14 (Exhibit 2a).
Keep in mind, compensation could be
reflected in multiple boxes on your W-2.
The company is required to supply
employees (or former employees) with a
Form W-2 to report the compensation
income recognized as “wages” by the
IRS. In the case of a nonemployee, the
compensation income will be reported on
a Form 1099-MISC. a
TIP:Companies may display W-2
compensation in multiple boxes,
depending on the type of award/
transaction.
Hypothetical example. For illustrative purposes only.

Step 3 EXHIBIT 3

Refer to Form 1099-B (Exhibit 3a and b)

sent by Morgan Stanley to find the gross
proceeds (less commissions) and cost basis.
The cost basis will be reported to the IRS
for transactions identified as “covered.” For
noncovered transactions, only the gross
proceeds less commissions will be reported
to the IRS.
a   Box 1d reflects the gross proceeds
a b
less commissions. The actual net proceeds
you receive will differ according to
whether federal and income tax and
federal backup withholding applies.
For example, for Stock Option cashless
exercises, you will notice that the amount
in Box 1d may be significantly larger than
the actual proceeds you received.

b   Box 4 only reflects the amount of
Hypothetical example. For illustrative purposes only.
federal backup withholding, if applicable.
It does not show federal income tax.

REMINDER: Backup withholding

occurs if you don’t have a W-9 or
W-8BEN Tax Certification form on
file with Morgan Stanley. It’s quick
and easy to certify online at www.
stockplanconnect.com to prevent any
backup withholding.

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 TAX FILING BASICS FOR STOCK PLAN TRANSACTIONS

EXHIBIT 4 Step 4
Calculate your gains and/or losses
using Form 8949—Sales and Other
Dispositions of Capital Assets. (See
Exhibit 4a.) Enter your cost basis and
any applicable adjustments. Refer back
to page 3 for information on cost basis.

Hypothetical example. For illustrative purposes only.

EXHIBIT 5 Step 5
Carry over the subtotals resulting on
Form 8949 to Schedule D Form 1040.
(See Exhibit 5a).
IMPORTANT NOTE: The information
in this guide is not intended to replace
the advice of a tax professional. We
recommend you seek advice and guidance
from a certified tax professional that can
assist you according to your individual
circumstances.

Hypothetical example. For illustrative purposes only.

MORGAN STANLEY | 201 9 7
TAX FILING BASICS FOR STOCK PLAN TRANSACTIONS

Terms You Should Know

CAPITAL GAIN OR LOSS. The profit or loss resulting from the sale of a capital
asset, such as stock.
• Long-Term Capital Gain or Loss. Long-term capital gain/loss occurs when
Have Questions?
stock is held for more than 12 months before selling and is therefore taxed at
the favorable capital gain rate. If you have questions on:
• Short-Term Capital Gain or Loss. Short-term capital gain/loss occurs on FORM W-2 
stock held for 12 months or less before selling and therefore is taxed at your Contact your company’s
ordinary income tax rate. payroll department.
COST BASIS. The cost of shares used to calculate your gains or losses for IRS TAX FORMS  ​
tax purposes. Visit your local IRS office, call
• Adjusted Cost Basis. The cost of shares for tax purposes (usually the purchase 800-TAXFORM, or go to www.irs.gov.
or acquisition price), adjusted for wash sales, stock splits, dividends, taxable MORGAN STANLEY DOCUMENTS ​
compensation and return of capital distributions. For copies of your documents:
• Covered Transaction. With a covered transaction the cost basis for 1099-B
reportable transactions must be reported to the IRS by Morgan Stanley. • Go to StockPlan Connect at
w ww.stockplanconnect.com.
• Noncovered Transaction. With a noncovered transaction the cost basis for
1099-B reportable transactions is not reported to the IRS by Morgan Stanley. From the home page, select:
– Documents > Tax Documents, or
DISPOSITION. Another word for the sale or transfer of stock. – Tax Resources > Documents
• Disqualifying Disposition. If the required holding period of two years from • Call Morgan Stanley’s Tax Reporting
offering/grant and one year from purchase is not met on shares sold from a Service Center at:
Section 423 ESPP or the exercise of an ISO grant, the sale is considered a – 877-772-1099 (toll-free), or
disqualifying disposition and therefore results in certain tax consequences. – 801-617-7467 (toll)
• Qualifying Disposition. If the holding period requirement is met before
selling the shares, the sale price will determine whether both ordinary income
and capital gains apply.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide
tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for legal matters.

© 2019 Morgan Stanley Smith Barney LLC. Member SIPC. CRC 2380866 01/2019  CS 9462664 01/19