Code V in W-2 Box 14: Cost Basis, Box 12 Overlap, and NSOs

A Code V entry in Box 14 of your W-2 is an informational note from your employer showing how much of your Box 1 wages came from exercising nonstatutory stock options (NSOs). The official reporting slot for this figure is Box 12, where the IRS requires it. Box 14 just repeats it as a courtesy so you can see the breakdown. It is not extra income, and you do not add it to anything on your Form 1040.

What the Code V Dollar Figure Represents

NSOs let you buy company stock at a fixed exercise price. When you exercise, the difference between the stock’s fair market value that day and the price you actually paid is taxable compensation. That difference is the “spread,” and it’s what the Code V number reports.

Under 26 U.S.C. §83, property you receive for your services is included in gross income to the extent its value exceeds what you paid for it.1Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services For NSOs, the spread is taxed at ordinary income rates in the year of exercise, not at capital gains rates.2Internal Revenue Service. Topic No. 427, Stock Options

A simple example. Your options have a $10 exercise price. On the day you exercise, the stock is worth $25. The $15 per share spread is ordinary compensation. Multiply by the number of shares exercised, and that total is what you’ll see tagged with Code V.

Why the Same Number Appears in Box 12 and Box 14

The IRS requires employers to report NSO exercise income in Box 12 using the letter code V. The 2026 W-2 instructions define Code V as “income from the exercise of nonstatutory stock option(s)” and specify the spread between fair market value and the exercise price.3Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026) – Section: Box 12 Codes

Box 14 is a free-form field. The IRS instructions tell employers they “may use this box for any other information that you want to give to your employee,” with each entry labeled.4Internal Revenue Service. General Instructions for Forms W-2 and W-3 (2026) – Section: Box 14a Other Many payroll systems reprint the Code V figure there (sometimes labeled “NSO Income,” “Stock Option Income,” or just “Code V”) so you can see at a glance which slice of your Box 1 wages came from the option exercise. For 2026, the IRS split the old Box 14 into Box 14a (Other) and Box 14b (Treasury Tipped Occupation Codes); the NSO label will sit in Box 14a.

The two numbers should be identical. If they match, nothing special is required for your federal return. Some states also pull from Box 14 for their own reporting, which is another reason employers put it there.

It’s Already in Your Box 1 Wages

The Code V amount is baked into three places on the same W-2:

Because the spread is already inside Box 1, the Box 1 figure is what flows to your Form 1040. You don’t add the Code V number on top. The Box 12 and Box 14 entries exist so the IRS can confirm FICA was withheld on the option income and so you have a clear record of the spread for later.

“Later” is the part most people miss.

Where Code V Matters Most: Your Cost Basis When You Sell

When you eventually sell the shares you acquired through the exercise, your broker issues a Form 1099-B. The cost basis on that form often shows only the exercise price you paid out of pocket, not the fair market value you were actually taxed on. Report the sale using the broker’s unadjusted basis and you’ll pay tax on the same spread twice: once as wages through Code V, and again as a phantom capital gain.

Your real basis is the exercise price plus the Code V spread, which equals the fair market value on the exercise date. In the running example, that’s $10 paid plus $15 of spread, for a $25 per share basis. The IRS instructions for Form 8949 state directly that for compensatory options granted after 2013, the basis reported on your 1099-B “won’t reflect any amount you included in income upon grant or exercise of the option,” and that you should increase the basis by that amount.7Internal Revenue Service. 2025 Instructions for Form 8949

To correct it, report the sale on Form 8949. If the basis was reported to the IRS, enter code “B” in column (f) and put the basis adjustment in column (g). The adjustment per share equals the Code V figure divided by the number of shares exercised. The corrected gain or loss carries over to Schedule D.8Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Many brokerages send a supplemental statement alongside the 1099-B that lists the adjusted basis for compensatory shares. Check your numbers against it before filing.

This is the single reason to hang on to the Code V figure for years after the exercise. Even if you sell the shares in a later tax year, the W-2 that showed Code V is the document that proves your real basis.

When the Numbers Don’t Match or Look Wrong

Box 12’s Code V and Box 14’s NSO entry should be the same dollar amount. If they aren’t, or if either figure doesn’t match what your brokerage shows for your exercises during the year, start with your employer’s payroll department. Typical errors include using the wrong fair market value date, miscounting shares, or missing a late-December exercise. A corrected W-2 is issued on Form W-2c.9Internal Revenue Service. About Form W-2c, Corrected Wage and Tax Statements

If payroll won’t fix it, you can contact the IRS, which will reach out to the employer. In the meantime, file using the figures you can document from your brokerage records, and include an explanation. An incorrect W-2 should not push you into overpaying or underpaying.

Code V Means NSOs, Not ISOs

One boundary worth stating. Code V appears only for nonstatutory stock options. Incentive stock options (ISOs), defined under 26 U.S.C. §422, are taxed under a separate regime with holding period rules and potential Alternative Minimum Tax exposure, and the spread at exercise is not reported as Code V wages.10Office of the Law Revision Counsel. 26 USC 422 – Incentive Stock Options If you see Code V on your W-2, the options being reported are NSOs, whatever your grant paperwork may have called them.