Tax Filing Basics for TABLE OF CONTENTS

2 Tax Documents You Will Need

Stock Plan Transactions 3

5
How to Calculate Your Cost Basis
Steps to Report Your
Stock Plan Transaction
8 Terms You Should Know
Tax reporting for stock plan transactions can be confusing.
8 Have Questions?
Understanding the federal income tax laws and regulations
along with knowing which Internal Revenue Service (IRS)
Forms must be filed can be overwhelming. Important Note: This guide is not intended
to be comprehensive tax advice or replace
If you sell stock as a result of participation in your company’s the advice of a tax advisor. We recommend
stock plan, you may need to: you seek the counsel of a certified tax
professional to obtain personalized and
• Refer to the cost basis provided by Shareworks comprehensive guidance.

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 about

stock sales that you may need for a less stressful tax season.
TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

Tax Documents You Will Need

You may need various documents and forms to report your sales of stock related to a stock
plan 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  Form 8949 Form 8949 is used to report sales and other dispositions Visit your local IRS office
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.

Shareworks  Form 1099-B 2 Form 1099-B reports any sale transactions completed Shareworks by
by Morgan Stanley during the year and backup withholding applied to the Morgan Stanley generally
Forms transaction (if any). sends this to you by
February 15 of the year
You may receive more than one Form 1099-B from following your transaction.
Shareworks by Morgan Stanley.
Go to
 Form 1099-DIV Form 1099-DIV shows any reported dividend payments and www.stockplanconnect.com.
certain other distributions received throughout the year. From the home page,
select: Documents >
Tax Documents, or Tax
 Form 480.6A Form 480.6A reports dividend income and/or gross proceeds Resources > Documents.
(Puerto Rico less commissions and fees. The numbers reported on the
residents only) 480.6A are the same amounts that the firm reports to the
IRS on Forms 1099-DIV and 1099-B.

Form CA 592-B California Form 592-B reports state tax withheld on

California-sourced payments. If state tax was withheld,
it also will be reported within Box 16 on Form 1099-B.

Depending on the type of stock plan transaction, Shareworks by 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 generated on the night of the completed transaction.

Note: If you’ve received a distribution from a cash-settled award, such as a restricted cash plan, the income and taxes will generally be reported
on your Form W-2 from your company. Shareworks by Morgan Stanley does not report on this type of transaction. This summary does not address
tax forms and reporting applicable to U.S. non-residents, such as Form 1042-S. Please contact your company with any questions.
1
  If you are not an employee but received compensation, the company may send Form 1099-NEC instead of Form W-2. You will also receive
information about your exercise of an ISO on Form 3921 and your transfer of stock acquired through an ESPP on Form 3922. These statements
include exercise date, exercise price and fair market value at exercise, as well as additional information.
2
  Keep in mind, not all transactions generate a Form 1099-B.

2 MORGAN STANLEY AT WORK

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 Shareworks by Morgan Stanley. When
What is “cost basis”?
available, Shareworks by Morgan Stanley can provide the original “Cost basis” refers to the cost
purchase price to assist in making this calculation. In addition, you of shares plus any adjustments
may need to adjust the cost basis to reflect any compensation under the tax rules and is used
income reported by your employer.
to calculate gains or losses for
It is important to understand how to calculate and report cost tax purposes.
basis when filing your taxes. Shareworks by 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 generally determined What does “covered”
by the type of security and the year acquired. You will see this versus “noncovered” mean?
identified on Shareworks by Morgan Stanley’s Form 1099-B. It
is possible to have both covered and noncovered transactions
“Covered” means the transaction’s
in the same security. cost basis must be reported
to the IRS by Shareworks by
Regardless of the covered or noncovered status of a transaction,
an adjustment to the basis may need to be reported on IRS Form
Morgan Stanley. If “noncovered,”
8949 and Schedule D of Form 1040. Refer to the instructions on Shareworks by Morgan Stanley is not
the next page for assistance in calculating cost basis.3 required to report the cost basis.

Tax Reporting on Shares Transferred Out

of Your Stock Plan Account
Shares transferred out of your Stock Plan Account and into
another account are still subject to the same cost basis reporting
rules. It’s important that you maintain the details of your stock
plan transactions (Confirmation, Statements and Forms W-2)
in preparation for future tax reporting years. It’s important that You may receive
you remember to adjust the cost basis for future transactions in multiple Forms 1099 if:
which you already paid the taxes on your income within a prior
tax reporting year. •Y
 ou sell shares from different
types of equity plans.
Don’t Forget Wash Sales •Y
 ou sell long shares within
Wash sales need to be reported on IRS Form 8949. A wash
more than one Morgan Stanley
sale occurs when shares of a security are sold at a loss and
“substantially identical” shares are purchased within 30 days brokerage account.
before or after the sale. The loss is disallowed and must be Note: You should ensure
added to the cost basis of the newly purchased shares.
you’ve received a Form 1099-B
Shareworks by Morgan Stanley will report wash sales only or Form 1099-DIV for all
for transactions occurring within a single Shareworks by applicable transactions.
Morgan Stanley account. Since a wash sale can be triggered
by activity within multiple accounts, either at Shareworks by
Morgan Stanley or at another brokerage firm, it is critical that
you review all transactions in company stock. Seeking advice
from a tax advisor is recommended.

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.

MORGAN STANLEY AT WORK 3

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

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 is necessary
4
Consider if a “wash sale”
in Column C and how it is calculated. applies to you.
(The “full” cost basis is determined by
adding Column B and C together.)

Column A Column B Column C

Grant/Award Type and Transaction
Taking Place in Your Stock Plan Account
Restricted Stock
Sell-to-Cover (STC)/Sell-All-Shares (SAS)
at the time the shares vest
Cost Basis Shown on Form 1099-B
(Include this amount in the amount
reported in box (e) on Part I or
Part II of Form 8949 and Schedule D
of Form 1040)
Fair Market Value (FMV) at Vest: 4
(Number of shares sold x FMV) 4
How to Adjust Cost Basis for
Form 8949 and Schedule D
(Include this amount in the amount reported in box (g)
on Part I or Part II of Form 8949and Schedule D
of Form 1040)
Not Applicable

Sell long shares post-vest FMV at Vest: 4 Not Applicable

(Number of shares sold x FMV) 4

Incentive Stock Options

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 Exercise / 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 at exercise and
(Number of shares sold x Grant Price) 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 sale of shares acquired under a (Number of shares sold x of the stock on the purchase date.
non-§ 423 Plan with a discount Purchase Price)

Sale of shares acquired under a Purchase Price: Not Applicable

Nondiscounted Plan (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

Assuming no Section 83(b) election was made and you did not make a payment in exchange for the restricted stock.
4

If your company relies on IRS relief from Form 1099-B reporting for cashless exercise, you will not receive a Form 1099-B for your cashless exercise(s)
5

as your company will report this information on your Form W-2.

4 MORGAN STANLEY AT WORK

 TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

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.6
Step 1
Start by referring to the tax document
Shareworks by 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   $76,225.40 — taxable compensation
B   $22,793.91 — tax withholding

EXHIBIT 1

Hypothetical example. For illustrative purposes only.

Assuming no Section 83(b) election was made and you did not make a payment in exchange for the restricted stock.
6

MORGAN STANLEY AT WORK 5

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

EXHIBIT 2

Step 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 Form 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
$76,225.40
Note: Companies can A
voluntarily report
compensation income will be reported on a in box 14.
Form 1099-NEC.

TIP:Companies may display Form W-2

compensation in multiple boxes, depending
on the type of award/transaction.

Step 3 Hypothetical example. For illustrative purposes only.

Refer to Form 1099-B (Exhibit 3a and b) sent
by Shareworks 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 EXHIBIT 3
transactions, only the gross proceeds less
commissions will be reported to the IRS. STOCK PLAN ACCOUNT
FORM 1099-B FOR 2020
A  Box 1d reflects the gross proceeds less
commissions. The actual net proceeds you receive
will differ according to whether federal and state
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
A B C D
you received.
B  Box 1e provides the cost basis amount
reported to the IRS for covered transactions.
This amount may need to be adjusted when filing
your taxes. Please refer to page 4.
C   Box 4 only reflects the amount of federal
backup withholding, if applicable. It does not show
federal income tax owed.
Hypothetical example. For illustrative purposes only.
D  Box 16 reflects state backup withholding
amount withheld, if applicable.

Note: Only the Form 1099-B fields that apply to

the transaction will be populated.

REMINDER: Federal backup withholding occurs

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

6 MORGAN STANLEY AT WORK

 TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

EXHIBIT 4

Step 4
Calculate your gains and/or losses
2020 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 4 for information on cost basis.

Hypothetical example. For illustrative purposes only.

EXHIBIT 5

Step 5
Carry over the subtotals resulting on
2020 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 who can assist you
according to your individual circumstances.

Hypothetical example. For illustrative purposes only.

MORGAN STANLEY AT WORK 7

TAX FILING BASICS FOR STOCK PLAN TRANSAC TIONS

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 stock
is held for more than 12 months before selling, and is therefore taxed
at the favorable capital gain rate.
• Short-Term Capital Gain or Loss. Short-term capital gain/loss occurs on stock
held for 12 months or less before selling, and therefore is taxed at your ordinary
income tax rate.

COST BASIS. The cost of shares used to calculate your gains or losses for Have Questions?
tax purposes. If you have questions on:
• Adjusted Cost Basis. The cost of shares for tax purposes (usually the purchase
FORM W-2 
or acquisition price), adjusted for certain events such as wash sales, stock splits,
Contact your company’s
dividends, taxable compensation and return of capital distributions.
payroll department.
• Covered Transaction. With a covered transaction, the cost basis for Form 1099-B
reportable transactions must be reported to the IRS by Shareworks by IRS TAX FORMS  ​
Morgan Stanley. Visit your local IRS office, call
• Noncovered Transaction. With a noncovered transaction, the cost basis for 800-TAXFORM or go to www.irs.gov.
Form 1099-B reportable transactions is not reported to the IRS by Shareworks
SHAREWORKS BY
by Morgan Stanley.
MORGAN STANLEY DOCUMENTS ​
DISPOSITION. Another word for the sale or transfer of stock. For copies of your documents:
• Disqualifying Disposition. If the required holding period of more than two years Go to StockPlan Connect at
from offering/grant and more than one year from purchase is not met on shares w ww.stockplanconnect.com.
sold from a Section 423 ESPP or the exercise of an ISO grant, the sale is considered
From the home page, select:
a disqualifying disposition and therefore results in certain tax consequences.
• Documents > Tax Documents, or
• Qualifying Disposition. If the holding period requirement is met before selling
• Tax Resources > Documents
the shares, the sale price will determine whether both ordinary income and
capital gains apply.

About Shareworks by Morgan Stanley

Shareworks by Morgan Stanley is a premier equity plan management solution
that integrates Solium’s cutting-edge technology with Morgan Stanley’s
exceptional client service and its wealth management offering and is part
of the new Morgan Stanley at Work comprehensive suite of workplace
financial solutions, including Financial Wellness and Retirement. With smart
technology and outstanding client service, Shareworks by Morgan Stanley
simplifies the complexities of equity plan management while helping
employees realize the full potential of their equity benefits.

Shareworks by Morgan Stanley and its affiliates (“Shareworks”) do not provide tax or legal advice. Individuals should consult their tax advisor for matters
involving taxation and tax planning and their attorney for matters involving legal matters. Tax laws are complex and subject to change. The information
contained herein is based on the tax laws in effect as of January 1, 2020. Shareworks assumes no responsibility to update this material in the event of
such changes in tax law. Consult your tax advisor regarding any changes to these laws.
© Shareworks by Morgan Stanley services are provided by Morgan Stanley Smith Barney LLC, member SIPC, and its affiliates, all wholly owned subsidiaries
of Morgan Stanley.

CRC 3118868 12/20  CS 9922766 12/20