At this time, Gusto only supports non-statutory stock options (NSOs).
Use the information below to learn how to record these transactions in Gusto so it's reported on Form W-2 accurately.
In addition to wages, salaries, and commissions, other forms of compensation such as stock options must be included in an employee’s gross income. A NSO (also known as non-qualified stock options) gives employees an option to buy company stock at a fixed price for a certain period of time, with fewer conditions than statutory stock options. Reminder: Statutory stock options (such as Incentive Stock Options (ISOs) and Employee Stock Purchase Plan (ESPP)) are not currently supported in Gusto—consult with a CPA or tax advisor on how to meet these requirements.
A NSO under the Internal Revenue Code (IRC) provision of section 83(b) gives an employee the opportunity to elect current taxation to limit future taxes, when exercising non-statutory stock options. This is achieved by including in an employee’s gross income, the difference between the fair market value of the stock and the option’s exercise price. This difference (also known as the spread), is the amount that gets added to the employee’s gross income, is subject to income and employment tax, and is subsequently reported on the employee’s Form W-2.
To make sure income from the exercise of NSOs gets reported accurately on the W-2, you must complete the following actions.
Record the transaction(s) in Gusto (using one of the methods detailed below), and
Record the transaction when going through your tax checklist toward the end of the year so that it appears on the W-2.
The spread or amount from the exercise of the NSO can be added to the employee’s gross income in Gusto using one of two methods—use the dropdowns below to learn more.
Go to our article on how to report a non-Gusto payroll.
When reporting NSOs through the non-Gusto Payroll tool, there are a few things to keep in mind:
If your accountant or other third-party provider has provided you with specific tax amounts for this transaction, you can edit the tax amounts that the non-Gusto payroll tool provides.
This includes setting federal and/or state income tax to $0.
The NSO amount should be added as gross wages in the non-Gusto payroll.
Make sure the employee has enough wages on this payroll to cover the increased taxes for the stock option. If there aren’t enough funds to cover the taxes or any more regular payrolls to run in the year, use the preferred method.
Set up an Other (taxable) benefit for the employee.
Name it "Stock Options" or something similar for reporting purposes.
Enter the taxable value of the stock as the Company Contribution.
Set the Employee Deduction to $0.
Run a regular payroll with this benefit active.
Once the payroll has been run, remove the benefit from the employee’s profile, so it isn't applied to any future payrolls.
Income from the exercise of non-statutory stock options gets added to the W-2 boxes listed below.
Box 1: Wages, tips, and other compensation
Box 3 (up to the Social Security wage base): Social Security wages
Box 5: Medicare wages and tips
Box 12 with Code V: Income from the exercise of non-statutory stock option(s)
This must be added manually as special compensation. You'll be prompted to add it in your account before we file W-2s.
Box 16 (reporting requirements vary by state): State wages, tips, etc.
Box 18 (reporting requirements vary by local): Local wages, tips, etc.