ESOP

[Terry53029]

Have new client, has amount in box 14 that represents reinvested dividends. Is that just for her to keep track of basis, or should it be reported. Appreciate any help, no memory of seeing that before, Thanks  

[IRonMaN · Accepted solution]

I don't recall seeing one of those either.  But since box 14 is supposed to just be informational, I'm guessing your assumption about tracking basis is a good assumption.

[TaxReturnPros]

Yes, the reinvested dividends adds to their basis.

In most cases, the information that the employer lists in an employee's W-2, Box 14 is mostly informational and does not affect the tax return anymore. In this case, it's info for the employee.

[TaxGuyBill]

That seems to imply that there were dividends paid out.

That would mean there should be a 1099-DIV showing those dividends (and the need to report them), right?

[Terry53029]

Many thanks for all your inputs I am pretty confident it not a taxable event. Have last years taxes, and they had same info, and did not report the amount box 14 anywhere (not that it makes it right). I am going to keep the trend going and not report it. Again Thanks guys 😁

[TaxGuyBill]

I guess I'm puzzled why dividends would not be reported.  I would think there SHOULD be a 1099-DIV.

The reason the dividends are added to Basis is because the dividends are subject to tax (in some cases, such as Qualified Dividends, that tax could even be 0%).

[IRonMaN]

But since the note is made on the W-2 I was thinking they were added to wages.

[TaxGuyBill]

Oh, I bet you are right.  I tend to forget how those ESOP thingys work, but adding to the W-2 does happen with those (at least in some cases).

[itonewbie]

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@Terry53029 wrote:

Have new client, has amount in box 14 that represents reinvested dividends. Is that just for her to keep track of basis, or should it be reported. Appreciate any help, no memory of seeing that before, Thanks  

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@Terry53029  How it's reported doesn't make sense.  Structurally, dividends paid on ESOP are generally deductible "applicable dividends" as defined under §404(k) for corporate tax purposes and are divided into two categories:

1) Paid directly by the company to plan participants or beneficiaries, in which case, these dividends are reportable on 1099-DIV; or

2) Paid to the plan and subsequently distributed not later than 90 days after the close of the plan year to plan participants or beneficiaries, who may elect to have the dividends reinvested, in which case these distributions are treated as earnings rather than dividends for purposes of §§402, 411(a)(11), and 401(k) even though these are specifically excepted from the 10% early distribution penalty under §72(t).  Consequently, these distributions are reported on 1099-R with Code U instead.

If we are talking about RSU, it would not then be uncommon to see dividends-in-lieu being paid as part of Box 1 because these units lack voting rights and are not otherwise entitled to dividend payments.  Under such plans, however, there wouldn't be an option for reinvestment.

You may like to have your client request some additional details from the plan administrator and payroll.

[Terry53029]

@itonewbie Thanks for your input, muchly appreciated. I did ask client to check with her HR department for clarification. She said none of her previous preparers have ever asked before (lasts year was prepared by CPA). Has been doing this way for several years, so I'm hoping its correct. Again thanks for your input.

[itonewbie]

NP, @Terry53029!