what is an stc assignment form

How does STC trading work? A Solar Installers and Retailers Guide to STCs

The Federal Government created the Small-scale Technology Certificate (STC) trading market in 2001 to encourage consumers and small businesses to install renewable energy systems. It does this by setting a requirement for big polluters to buy a certain percentage of energy each year from renewable energy sources.

There’s no denying that these STCs have been a critical part of the solar boom in the last decade. By creating an upfront discount, they’ve decreased the cost of installation by an average of $500-$600 per kW. However, the additional paperwork could be challenging when you first start selling on your own. You just want to get back to doing what you do best, designing and installing rooftop solar PV systems. So to help you simplify your business administration, we’ve created this guide to help solar installers on how to manage your STCs.

In this article, we cover:

• how the small-scale renewable energy scheme works
• how to calculate STCs

STC eligibility requirements

Stc legal paperwork, how to become a rec agent, historical stc prices.

• and how to answer Common STC questions from consumers.

How the Small-scale Renewable Energy Scheme works

The Small-scale Renewable Energy Scheme, or SRES, is the name of the STC market.

• The Federal Government creates Renewable Energy Certificates. STCs are awarded to solar projects below 100kW.
• The government awards your customers (the homeowners) STCs, when they purchase solar PV systems from you, .
• Your customer signs the rights to the STCs to you (optional).
• The STCs are registered and sold on the market. This is typically done via a specialist STC broker. The total value of the STCs allow you to offset the upfront cost of the solar system.
• The STCs are then sold to fossil fuel generators and other large polluters.

How to calculate STCs

The formula used to calculate the number of STCs each solar system should be awarded is quite simple. First, multiply the DC capacity of your customer’s solar panels, the years left in the SRES on date of install, and the rating given to your customer’s STC region. After that, round down the result as the CER does not award partial STCs.

For example: 5 (kW) x 13 (years) x 1.382 (zone 3) = 82.92 = 82 STCs

Assuming your STCs can be traded for $35 each, this is a saving of $2,870.00.

NOTE: The number of years in the deeming period decreases over time was designed to incentivise consumers to get solar sooner, rather than later.

Zone multipliers

• Zone 1 – 1.622 multiplier
• Zone 2 – 1.536 multiplier
• Zone 3 – 1.382 multiplier
• Zone 4 – 1.185 multiplier

The eligibility requirements cover five facets, and they are:

• you and your company’s qualifications
• the solar project’s size
• the solar project’s adherence to safety and quality standards;
• the certificate creation date
• and protecting your customer after the install.

You and your company’s qualifications.

The solar system must be designed and installed by CEC accredited technicians to be eligible for STCs.

Working on Grid-connect or Stand-Alone systems requires separate accreditations. Depending on your business needs and where you choose to take your career you can get accreditations for both design and installation. You must hold an unrestricted electrical license to apply for any Install accreditations.

The solar design and installation.

The output capacity of STC projects is limited to 100kW. This refers to the solar panel ‘rated’ output, and not the inverter. Over this size, LGCs are the relevant Renewable Energy Certificate.

The only solar panels and inverters which can be installed under the SRES are those approved for use by the Clean Energy Council at time of STC creation. If a product has been de-listed between installation and attempted creation of STCs, the system is no longer eligible.

The design and installation follow the relevant CEC guideline:

• Grid-Connected Solar PV Systems: Install and Supervise Guidelines for Accredited Installers
• Grid-Connected Solar PV Systems: No Battery Storage, Design Guidelines for Accredited Installers
• 30-100kW Grid-Connected Solar PV Systems: No Battery Storage, Design Guidelines for Accredited Installers

Your installation complies with the service and installation rules for your state

• ACT: ActewAGL Service and Installation Rules
• NSW: NSW Trade and Investment: Energy Supply Industry Service and Installation Rules
• NT: PowerWater Power Network Policy Installation Rules and Power Networks Service Rules
• SA: SA Power Networks Service and Installation Rules
• TAS: Tas Networks Service and Installation Rules
• QLD: Queensland Electricity Connection & Metering Manual
• VIC: Victorian Service and Installation Rules
• WA: WA Department of Commerce Electrical Requirements

Your installation complies with the electricity safety Acts for your state.

The design and installation follow the Australian Standards.

• AS/NZS 3000:2018, Wiring rules
• AS 4777.2:2016, Grid connection of energy systems via inverters
• AS/NZS 5033:2014, Installation and safety requirements for photovoltaic arrays
• AS/NZS 1768:2007, Lightning protection
• AS/NZS 1170.2:2007, Structural design actions, Part 2: Wind actions
• AS/NZS 4509.1:2009, Stand-alone power systems, Part 1: Safety and installation (for off-grid systems)
• AS 4086.2:1997, Secondary batteries for use with stand-alone power systems, Part 2: Installation and maintenance. (for battery systems)
• AS 5139:2019, Electrical Installations—Safety of battery systems for use with power conversion equipment (for battery systems)

Certificate creation date.

The STC certificates can be created no later than 12 months post-install.

Post-install.

The STC assignment form is completed and submitted to the party who registers the STCs. This is either you or your chosen trader. Then, certificates of compliance are given to the customer with a copy retained by yourself.

These include:

• a certificate to confirm the system meets all relevant Australian Standards, and all local, state or territory requirements
• an on-site verification statement by the system owner that the accredited installer or supervisor has attended the system installation
• an on-site verification statement by installers
• a certificate to confirm your company has at least $5 million public liability insurance
• a certificate of electrical safety
• and an engineering certificate from your solar panel mounting bracket supplier stating that the array frame is certified to AS1170.2 for their location.

Replacement System STC Eligibility

If you are replacing an entire system, the new system is eligible for STCs. If you are replacing panels, the system is not eligible for STCs for the new panels. The reason: at least one major component (i.e.; panel or inverter) has been used previously to claim small-scale technology certificates for the same project.

Solar Panel Validation Initiative

To prevent fraud, industry players and manufacturers have coordinated to create solar panels validation apps under the Solar Panel Validation Initiative. This program is designed to discourage unscrupulous manufacturers and suppliers from selling fake solar panels.

This task is an optional extra that speeds up the CER’s mandatory pre-sale STC audit. Without solar panel validation, it could take up to 4 weeks. With solar panel validation, auditing is typically around 48 hours.

• BridgeSelect

Participating in the STC market

The easiest way is to have STC traders sell AND register your STCs for you. Alternately, you can register and have the traders sell for you, or even do all the registering and selling yourself. If you’re interested to know how to do it all yourself, we explain the necessary steps in the How to become a REC agent section below.

Traders register and sell your unregistered STCs

This is the most common choice of small to mid-size installers and retailers. It saves time and creates a more predictable cash-flow.

Traders will buy your unregistered STCs same-day for a typical cost of $1 per STC. This looks like a $1 lower unregistered STC price and gives you faster access to cash. This price usually ranges from $32 to $38 per STC, depending on market conditions.

That price will always be a little lower than the current STC spot price. For their business to operate, they need to have some margin when they aggregate and sell the STCs themselves - a small price to pay for convenience and cash-flow.

Registered STCs

Large retailers often favour this option as the two-day to four-week registration timeline won’t impact cash-flow at your scale. Having access to large quantities of STCs also allows you to trade at the 5,000 minimum market parcel size at the spot price.

You register your STCs yourself and traders sell them

To register STCs yourself, you have to become a REC agent first. This application process can take many months.

Additionally, because the CER audits and validates all STCs before they can be sold, it adds a couple of days to your process time.

After you create your first 250 STCs in the REC registry, which are free, each extra certificate costs 47 cents to create. That is offset by traders offering you an average of $1 more for your registered STC.

Once you have negotiated a price with the traders, you transfer ownership through the REC registry.

Registering and selling the STCs yourself

After you create the STCs on the REC Registry, you have two options. You can then place them on the STC Clearing House or contact the big polluters to sell them directly.

On the Clearing House, you’ll get a guaranteed price of $40 (excl. GST). Your STCs will get added to the back of the queue as sales are processed on a first in first served basis. When they are sold, you’ll get an email, and the money should arrive in your account within three working days.

It can take weeks and months for STCs to be bought from the Clearing House because it’s the highest price. Unless the spot price is around and over $40, there is no financial incentive for the big polluters to buy from there.

Either way, to create and sell STCs, the following paperwork is required. They must be ready to give to the Clean Energy Regulator during the audit process if requested. I have attached links to the Clean Energy Regulator’s templates which they strongly encourage you to personalise for your company.

• The STC assignment form
• The on-site verification statement by the system owner
• The on-site verification statement by the accredited designer and installer
• Written statements that say you (included in the STC assignment form template): are accredited by the Clean Energy Council; have installed a system that meets the Australian Standards; have at least $5 million in public liability insurance; have installed the system according to local and state rules, and have completed the installation

List of STC traders

Traders offer a variety of options to help you with STCs registration and selling. These include online and paper (scanned) submissions, built-in solar panel validation, payment for selling your STCs to them same-day, within three business days, and even payment after the audit. Some have online apps, but all of them have their own STC assignment form template.

I’ve listed the specialist STC traders below to help you save time working out which one is right for you.

• Trade in Green
• Green Energy Trading
• RET Australia
• Sol Distribution
• One Stop Warehouse
• Powerark Solar
• Habitat Energy Systems
• Emerging Energy
• REC Traders
• REC Services

To register your STCs yourself, you’ll need to become a REC agent.

First, create an account on the Clean Energy Regulator Portal . After that, the Clean Energy Regulator asks that you complete SRES Smart, which aims to check that you know your obligations under the scheme as an installer.

You’ll need to pass every test with a score of at least 80% within five attempts.

Then you make an online application through the REC Registry. It may take up to 6 weeks for the CER to assess your application and get back to you.

If your application has been successful, you then ‘Upgrade’ your account in the settings to get access to the STC Clearing House. As a REC Agent, you can now register STCs.

If you’re interested in some historical STC prices, Demand Manager has a good overview of the last 12 months.

The easiest way to explain STCs to your customers

“The Solar PV system creates STCs. These belong to the owner of the solar system, you. So that you don’t need to deal with the whole STC creation and selling process, you transfer the rights to the STCs to me for a discount on the system price and I sell them for you.

Four factors determine the size of the STC financial incentive.

• the kW size of the solar system
• years till 2030 - the end of the SRES STC scheme
• the postcode you live in (your STC zone)
• the per STC price”

Common questions customers ask

Does it top out.

Yes. As a program for small-scale solar renewable energy installs, the maximum output capacity is 100kW. For renewable projects above 100kW, large-scale generation certificates (LGCs) are awarded.

Are off-grid solar PV projects included?

Yes, it also covers off-grid.

Are there income requirements?

No, the STC solar incentive program is not means-tested.

Who is the STC program for?

It’s for any solar PV project no matter the type of owner - homes, small businesses, schools, community groups.

What about batteries?

The STC solar incentive is not intended to cover energy storage because it doesn’t directly create additional solar energy production.

What about caravans, boats, houseboats, motor homes, and RVs?

It can apply to portable housing as long as it’s your primary place of residence.

Is this a rebate?

Despite how it appears, the STC ‘rebate’ is actually not a rebate. The STCs are a federal government incentive structure.

What is the STC rebate?

STCs are Australian Federal government issued certificates designed to reward the installation of small-scale renewable power generators. The number of STCs that are generated depend on the total kW size of the solar system, the number of years remaining in the deeming period and the multiplier factor that depends on the location of install."

How are STCs calculated?

Do you have to be on the grid to earn stc’s.

No, you don’t need to be connected to the grid to generate STCs

Alan Lam is a solar specialist with over 5 years of experience supporting solar businesses in Australia. Alan understands the nuances of government incentive schemes for solar in Australia and beyond in detail and has a wealth of knowledge to give solar installers.

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• Small Scale Technology Certificates

Small-scale Technology Certificates

Small-scale Technology Certificates (STCs) are a financial incentive to encourage the installation of solar and heat pump water heaters under a Federal Government operated scheme.

STCs are available for solar & heat pump installations in every state of Australia.

One STC is equivalent to a megawatt hour per year (MWh/yr) of electricity displaced by an eligible system.

Solar and heat pump water heaters predominantly use 'clean' renewable energy to heat water, thereby displacing the use of electricity.  

Eligibility Criteria

• STCs can only be created for solar and heat pump water heaters listed on the Clean Energy Regulator's 'Registers of Solar Water Heaters' and 'Heat Pump Water Heaters'.
• Installations in new and existing homes are eligible
• STCs can only be claimed by the owner of the solar or heat pump water heater
• Australia is divided into climate zones, 4 for solar and 5 for heat pump \(see map below\). The postcode of the location of the installation determines the climate zone in which it is installed,
• Effective 02/03/2021 the current price Rheem pays is $36.00 per STC (excludes gst and subject to change)
• The right to create STCs can be assigned to a Registered Agent of your choice in return for a financial benefit. Rheem is a Registered Agent and can look after this process for you.
• For more information on STCs, visit the Clean Energy Regulator website

How many STCs am I eligible for?

Each solar or heat pump system is eligible for a different number of STCs, which relates to the systems' capacity, efficiency and installation location. Enter your post code in the Rebate Register to find out how many STCs a Rheem solar or heat pump is eligible for at your home. Note: Effective 02/03/2021 the current price Rheem pays is $36.00 per STC (excludes gst and subject to change).

STC Calculator

How to claim the financial benefit of stcs through rheem.

Claiming your STCs is easy. At the time of installation, simply complete a STC assignment form with your plumber and return this to Rheem with the required attachments.

• Payment is made by Rheem Australia Pty Ltd (for STC claims made directly to Rheem)
• Payment is made via EFT
• Payment usually takes approximately 4 - 6 weeks
• Terms and Conditions

DISCLAIMER: Information contained in this site is based on publicly available data from Government authorities, and is provided as a guide only. All rebate and incentive schemes are subject to change, and require strict eligibility conditions to be met. STC values are nominal and are subject to change due to market fluctuations. Rheem reserves the right at its own discretion to refuse multiple assignment requests. Rheem advises to check full program terms and conditions with the relevant Government department or authority prior to purchasing a product for which you intend to claim a rebate(s). Rheem will not be held responsible for any cost, loss or damage incurred due to reliance upon the information contained in this site should such information be incorrect or contain an error. This page last updated 2nd March 2021.

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Small-Scale Technology Certificates (STC) Compliance Update

Stc compliance process update – 01 april 2022.

From the 1st of April, several changes have been implemented into the compliance process for Solar STCs. These changes directly affect solar installers and designers, agents and retailers.

This set of changes has been brought into effect under the Renewable Energy (Electricity) Amendment Regulations 2021. There are a series of changes that will unroll throughout 2022. The aim of the reforms is to strengthen the compliance requirements to create a sector with greater integrity, ultimately decreasing the risk of fraudulent STC claims.

What has changed?

1. the stc assignment form and written statement requirements.

An STC claim must have written statements from the associated retailer, designer and installer. 

There is a sample form found here that will assist in the development of these forms for your STC claims. 

The Clean Energy Regulator (CER) recommends that a witness signature should be incorporated into the forms. Despite not being mandatory, it assists in providing further assurance of the validity of the STC claim to the regulator. 

The written statement can only be completed once the solar system has been installed and energised. A copy of the form must be provided to the owner of the solar system, and the registered agent who will create the STCs.

2. Invoice Evidence

Under these reforms, the regulator may request a copy of the invoice proving the solar system is meeting the requirements as per the contract.

3. Physical Site Attendance

Installers must have evidence proving their physical site attendance (in either a supervising or physical installation role). This requirement has been in place since 2013, and with the April 1st changes documentation in the form of a written statement will provide further evidence.

Three check points are required for each site:

• The job set-up
• Mid-installation check up
• Testing and commissioning

The evidence can be a geotagged photo at each stage. If the installation spans multiple days or weeks, the installer is advised to supply sufficient notes to the registered agent to be submitted with the STC claim.

4. STC Sign Offs per Day

An accredited installer can sign off on 2 complete installations in one day and be eligible for STCs.

5. Bulk Uploads and Information Requirements

The requirements for bulk upload of STCs, and the information required to claim STCs for Small Generation Units have also been updated. The new information can be found here.

6. Fraudulent Activity

The new regulations will allow the CER to declare an individual designer or installer ineligible to participate in the SRES, as opposed to a company. A declaration of ineligibility can last for up to 3 years.

For any further information or for questions you may have, please contact our SRES team at [email protected]

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What are STC’s (Small-scale Technology Certificates)?

STCs, or Small-scale Technology Certificates, are a commodity that you can use for trade. You can obtain these certificates when you purchase a renewable energy system.

Currently, when you install one of these pieces of equipment, solar hot water systems included, you can claim STCs.

The amount of electricity that is generated or displaced by your system will determine the number of STCs assigned to you.

Solar hot water systems can reduce – or displace – the amount of electricity your household requires from the grid. Rather than using traditional electricity, solar hot water systems use the sun to generate power to heat your water.

The number of megaWatt hours of electricity created will determine the number of STCs you receive. A bigger system will naturally garner more of these certificates as it has a bigger capacity and means less electricity needs to be taken from the grid.

The number of these certificates you will be entitled to can also vary depending on your geographic location and the size of your system.

What are my STCs worth?

Since these certificates are not physical copies, but exist only online in the RET (renewable energy target) registry database, you may wonder just what their purpose is.

They can be sold either through the open STCs market, where prices will be subject to market forces, or through the STCs clearing house. Here, the certificates are price fixed at $40, which excludes GST.

Alternatively, STCs can be assigned to an agent so they can be exchanged for a discount or delayed cash payment.

Apricus Australia has a solar hot water rebate calculator , which you can use to get an indication of the value of STCs you are eligible for.

What paperwork do you need to get when a system is installed?

When you purchase a solar water system, you will be given a copy of the STC Assignment Form, which you need to sign after installation is completed.

You may also need to ensure you have any additional documentation required by your state in order to certify installation, such as a certificate of installation report.

Another thing to bear in mind is if you are installing a larger unit that contains more than 700 litres you will also need a statutory declaration to the effect that the unit will remain in its current location and configuration for its lifetime.

Apricus will supply another statutory declaration about the unit model, location, storage, usage, appropriateness and the expertise of the installer.

To chat to an expert about what your requirements, rights and responsibilities are, contact the friendly team at Apricus, who are here to help you through the entire process. Or watch our video on how Evacuated Tube Solar Hot Water System works.

Remember, you can check your STC eligibility using the Apricus Solar Rebate Calculator.

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STC Program – The Solar Rebate That Is Not Officially a Rebate

STC program is the abbreviation of Small-scale Technology Certificate. STC is a government program that gives financial incentives issued with qualifying solar power systems and solar panels. This can be redeemed as a dollar value that is deducted from the cost of the solar system. The value of STC can be varied depending upon the market conditions.

What Is The STC Program?

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The STC program comes under the solar credits program which says every megawatt-hour of qualifying energy generation is eligible to get Renewable Energy Certificates (RECs). These certificates can be split into two types: small-scale technology certificates and large-scale generation certificates (LGCs). STCs are the ones applicable to residential solar installations.

The government says it cannot be referred a solar rebate. The clean energy regulator website says that under the Small-scale Renewable Energy Scheme, the cost reduction in your solar panel is not a rebate. You will not be eligible for any Government-based financial compensation at the completion of any process relating to STCs. This only means the reduction in solar system price you are getting is not coming from the government.

You can get the benefit of this program while purchasing a solar power system from any reputed solar installers. Probably the installer discounts the STC value for you in your solar quote. They will take over the hassle of registering and selling STCs from you.

Read more about renewable power incentives given by the Australian government

If you buy a solar energy system now, it is subsidized by the government scheme worth around $650 per kW installed. For a typical 5kW system that cost reduction will be about $3250. This cost reduction will be applied at the point of sale.

The solar rebate started to reduce one fifteenth every year bases on the current legislation. It started in 2017 and it will gradually reduce until 2032 when the reduction will end up at zero.

If the demand for solar panels gets increased the value of the rebate will go down with STC price. The STC price can be varied between $0 and $40. This means the maximum value of STC set by law is $40.

Most of the owners are assigning a registered agent to create their small-scale technology certificates. But you have the option to create and trade the certificates by yourself. To claim your certificates, you need to follow the steps given here.

• Determine the eligibility of the solar power system or other small-scale renewable energy systems to be installed.
• Calculate the number of STCs to claim for your system.
• Obtain and complete the proper compliance paperwork.
• Create an account in the REC registry that includes verifying your identity and an assessment as a fit and proper person
• Creating STCs in the REC Registry within 12 months of the installation date.
• Wait for the Clean Energy Regulator to validate the certificates
• Find a buyer for the STCs or place them in the STC clearing house queue for sale.

Currently, the value of the solar rebate is about $38 per STC. It translates into a solar rebate of $525 per kW installed. As the STCs are traded in the open market it is exposed to market fluctuations. The historic low price of STCs has fallen into is $17. But still, the rebate will be worth around $221 per kW installed.

STCs are issued with eligible solar PV systems and solar panels and their dollar value can be redeemed which is usually deducted from the cost of the solar system. Most of the accredited solar installers take over the hassle of registering and selling STCs on the market from you and give the point-of-sale discount based on your STCs.

You can assign the certificates to the solar system installing agency will complete the registration process with the Renewable Energy Regulator on your behalf. But you don’t have to wait for that and will get an immediate cost reduction for the solar panel installation.

The amount you get can from this program is based on 3 factors:

• Dollar value of STC
• Zoning:Australia is divided into separate zones based on how much solar energy can be generated by the panels in a given area. You can see your zone by using the postal code.

See the Postcode zone ratings and postcode zones for solar panel systems given on the Clean Energy Regulator website to check your zone.

Each zone has a particular rating number which is used for the calculation of the number STCs the system eligible for. Those ratings are:

Zone 1 – 1.622 rating Zone 2 – 1.536 rating Zone 3 – 1.382 rating Zone 4 – 1.185 rating

• The deeming period: Since the solar rebate is gradually reducing one fifteenth every year until it gets completely ended, the deeming period will reduce each year.

Here are the approximate values of financial incentives for a 6.6kW solar energy system based on the $38 STC price:

Zone 1 – $4066

Zone 2 – $3852

Zone 3 – $3466

Zone 4 – $2971

As already mentioned, the amount of solar rebate can be varied according to the current market price of STC. Now the dollar value of STC is about $38 and the rebate will be worth around $525 per kW installed. When there is a high demand for solar panel installation, a lot of STCs will be created. As the supply of STC increases, the demand decreases and therefore the STC price and subsidy gets reduced.

Currently, a 6.6kW solar system is eligible for a rebate of $3465 (6.6kW x $525 = $3465). If the demand for solar panels increased too much, that can cause the STC price to drop. This means if you get quotes for solar now, you can get the rebate based on the current STC price.

The renewable energy certificates are introduced to attracts people to have renewable energy systems. They can also buy the right to other people’s energy systems in the form of RECs. The Small-scale Technology Certificate is a special type of REC. The value of STC can be redeemed as its dollar value. Most likely the installer will take care of the STC registration and other hassle related to it and you will get a reduction in cost during installation.

To calculate the rebate, you need to find out the number of Small-scale Technology Certificate your system eligible for. This can be calculated by the following equation?

Solar system size (kW) x Zone Rating x Deeming Period = Number of STCs

Then to find the solar rebate use the formula given below.

Number of STCs x Dollar value of an STC in the market = Amount of subsidy

The solar incentive program is open to a large group of people. Homeowners, small businesses, and community groups are all eligible for the program. The only eligibility criteria are:

• Your solar PV system should be less than 100kW.
• The system should be designed and installed by Clean Energy Council accredited professionals.
• Only use the solar panels  and inverter that are approved to use in Australia by the Clean Energy Council.

The renewable energy system owners must complete the STC assignment form to assign the certificates to an agent in exchange for a financial incentive. The form can be completed after the system installation is complete.

Commonly, the homeowners will assign the solar installer to create their small-scale technology certificates. You can ask a residential solar installer whether can manage the procedures to claim the STC solar rebate. But you can create and trade the STCs by yourself. The steps that need to be followed to claim by yourself have been explained above.

For 2020, the solar rebate value in Western Australia (WA) was $814 which translates into 22 STCs for a 1.5kW system. If you have a 2kW system, the incentive will be about $1110 or 30 STCs. All these estimates are calculated based on the $37 STC value.

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Tax return ‘cheat sheet’ for stock options, restricted stock, and espps.

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If your tax return involves equity compensation and stock sales, you may need some extra guidance to ... [+] avoid costly mistakes.

“March Madness” could be a name not only for the NCAA basketball tournament but also for the annual tax-return season, which hits full swing this month. If you’re one of the millions of employees in the United States with nonqualified stock options or restricted stock units, or if you participate in an employee stock purchase plan (ESPP), income from your equity awards last year will complicate your tax return.

Nobody likes doing homework for the IRS, but the handy “cheat sheet” in this article below can make the assignment easier for tax returns involving equity compensation and company stock sales. Even if you hire a professional preparer to handle your tax return, such as a CPA or enrolled agent, check your return for these items. You don’t want to overpay taxes or draw unwanted IRS attention that leads to a scary notice or audit.

Compensation Income

Stock compensation, along with your salary income, is included in what is reported in Box 1 of your Form W-2. You enter the amount in Box 1 on Line 1a of Form 1040.

Form 1040, line 1a

Alert: Be sure you don’t double-report any stock compensation income that also appears in Box 12 or 14 of your W-2 (or on a paystub).

Capital Gain Or Loss

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If you sold shares during the prior tax year—even shares sold immediately at exercise, vesting, or purchase for no additional gain beyond what’s on your W-2—you still separately report each sale. You then report that Schedule D capital gain/loss total on Line 7 of Form 1040.

Form 1040, line 7

Alert: Should you not report the sale, the IRS will almost certainly send you a notice demanding taxes on the full amount of your unreported sale proceeds. That would require you to potentially amend your tax return or engage in ongoing communications with the IRS to explain the situation. Not fun.

Check The Cost-Basis Reporting For Company Stock Sales

Here comes the really tricky part: adjusting the cost basis (or tax basis) of equity awards, i.e. the full cost of shares that generated compensation income. The cost basis is subtracted from your proceeds to calculate your gain or loss for tax purposes.

For shares bought in the open stock market, your cost basis is the purchase price. With equity compensation, the basis calculation includes the cost plus any compensation income recognized—for example, the exercise spread of nonqualified stock options (NQSOs) or the value of the shares at the vesting of restricted stock units (RSUs).

Form 1099-B reports your basis in Box 1e. Instead of boxes, your broker’s substitute statement will use columns numbered the same as the boxes on Form 1099-B. The same numbering is used on Form 8949.

However, the cost-basis information reported to the IRS by your broker in Box/Column 1e of Form 1099-B may be too low, or the box may be blank. IRS rules do not allow your broker to include the compensation income in the basis that’s reported on the 1099-B.

Alert: If the basis listed on the 1099-B is your option exercise price or your ESPP purchase price (or simply $0), then it is likely to be incomplete. You are at risk for overpaying your taxes. An adjustment will be needed on IRS Form 8949, which is used to report the sale, and its totals then funnel into Schedule D. For insights on what to do, see tip #2 in my Forbes.com article Pro Tips: 4 Tax Return Errors To Avoid With Stock Options, RSUs, And Stock Sales .

Alternative Minimum Tax (AMT)

For a few years now, the alternative minimum tax (AMT) has not had its own line on the main Form 1040—but that doesn’t mean it’s gone away! The AMT remains a concern for everyone with incentive stock options (ISOs). It is calculated on Form 6251:

• Exercise year: The spread at ISO exercise is reported on Line 2i if the stock was not sold during the calendar year of exercise.
• Sale year: After you sell ISO stock that triggered the AMT, the difference from the ordinary income tax is reported on Line 2k.

Form 6251, lines i and k

If your AMT is higher than your regular tax, you report this additional amount from your Form 6251 calculation on Line 1 of IRS Schedule 2 (“Additional Taxes”). The totals from Part I of Schedule 2 go into Line 17 on Form 1040.

After you trigger the AMT from an ISO exercise, you get an AMT credit that you can apply in every subsequent year when your ordinary income tax exceeds your AMT. You use Form 8801 to calculate how much of the credit you can apply each year. You carry forward the rest.

Alert: You do not need to sell the ISO stock to start using up the AMT credit. You continue to complete Form 6251 and 8801 each year until the credit is used up.

Equity Compensation Income Left Off W-2

What if your company does not report your employee stock compensation income on Form W-2? According to recent changes to Schedule 1 of Form 1040 and its instructions, the amount goes in the “Other Income” section on Line 8k (“Stock Options”).

Schedule 1, line 8k

If you are not certain that all equity compensation left off the W-2 goes on Line 8k, then it can fit into Line 8z (“Other Income. List type and amount”).

Estimated Taxes

The flat 22% rate often used for federal supplemental withholding on employee stock compensation may not cover the actual taxes you owe, given your marginal tax rate. You may have decided to pay estimated taxes to cover the additional taxes owed. On Form 1040, you report estimated tax payments on Line 26.

IRS Form 1099-NEC For Nonemployees

Nonemployees, such as consultants and directors, have no withholding and no W-2 reporting for stock comp income. Income from exercise or vesting appears on IRS Form 1099-NEC (“Nonemployee Compensation”) as self-employment income. This is shown in Boxes 1 and 7 of Form 1099-NEC. You report that income on Schedule C of your Form 1040 tax return.

As this is self-employment income, you also need to calculate on Schedule SE any Social Security and Medicare taxes that you owe.

Further Resources

The Tax Center at the website myStockOptions.com has resources devoted to tax returns involving equity compensation, including annotated diagrams of Form W-2, Form 3921, Form 3922, and Form 1099-NEC. For stock sales, annotated diagrams of Form 8949 and Schedule D show you how to report sales to adjust for an incomplete cost basis.

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