Stock Options 1099 Misc W2: Fill & Download for Free

It doesn't matter whether or not you are exiting. The exercise Non Qualified Stock Options ("NSOs", also called NQs or NQSOs) results in an Ordinary Income event for most individuals. If the options were earned while an employee then the company should withhold tax and provide a W2 at the end of the year. If the option were earned while a non-employee (generally a consultant) then the company will NOT withhold taxes, but will provide a 1099-misc at the end of the year.The withholding for "employees" is required even if the individual has been terminated and is no longer an employee. It is required even if the exercise is done in a calendar year after the year of termination.Disclaimer: I am neither a tax attorney, nor a CPA. This is my understanding of the rule, but you must get final guidance from someone who is licensed to do so.

If your startup employees exercised stock options in any given year, you’ll need to report that transaction to the IRS and provide the person a tax form. Which tax form depends on whether they were an employee or contractor, and whether they exercised RSU (Restricted Stock Unit), an ISO (Incentive Stock Option), or an NQSO (Non-Qualified Stock Option). I’ll review in case below:Startup Employee Exercises an RSU: provide the employee with an updated tax form W-2 (and edit boxes 1–6, 16–19) by Jan 31 of the following year. Note that most payroll providers will ask you whether you issued NQSOs to employees in December so that they can issue W2s as early in January as possible. Its imperative that the company respond to these end of year surveys.Startup Employee Exercises an ISO: provide the employee with tax form 3921 by Jan 31 of the following year. Note that ISO’s can only be issued to employees, not contractors. Many of our startups use Carta to track and record these transactions, but they do not file the 3921s for you. They will fill the form, but they cannot file for you… and you need to file with the IRS. In order to file your 3921s on Carta, you will need a unique TCC Code. Your TCC code is unique to your company, kind of like an FEIN number. Given that applying for and receiving a TCC Code can take weeks. Therefore, we recommend that you file your 3921s on Track1099 and transfer the information over from Carta.Startup Employee Exercises an NQSO: provide the employee with an updated tax form W-2 (and edit Box 12, Code 5) by Jan 31 of the following year. Note that most payroll providers will ask you whether you issued NQSOs to employees in December so that they can issue W2s as early in January as possible. Its imperative that the company respond to these end of year surveys.Startup Contractor Exercises an NQSO: provide the contractor with a tax form 1099-NEC and edit Box 7, Non-Employee Compensation. Note that for tax years before 2020, a 1099-MISC was used to report Contractor NQSOs. Track1099 files 1099s online and is excellent.Please see my grid below (I promise to update this with a better graphic later… apologies for the whiteboarding chicken scratch ;)

To use the Free version of TurboTax you can only haveW2 incomelimited interest and dividend incomemust claim the standard deductionThe free version will NOT reportitemized deductionsbusiness or 1099 Misc incomeStock salesRental property incomestudent loan interest deductionany credits or income that would show up on Schedule 1 through 6.