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Annotated diagram of Schedule DTax errors can be costly! Don't draw unwanted attention from the IRS. Our Tax Center explains and illustrates the tax rules for sales of company stock, W-2s, withholding, estimated taxes, AMT, and more.

ESPPs: Taxes

Are taxes withheld when shares are bought under an employee stock purchase plan that is not tax-qualified?

In a nonqualified ESPP, the full spread of any discount between the purchase price and the market price is included as ordinary income in your gross income and is subject to withholding at that time. Taxes withheld include:

  • federal supplemental wage withholding at 22% (but 37% for supplemental income in excess of $1 million during a calendar year)
  • Social Security up to the yearly wage ceiling, plus Medicare tax
  • state tax (if any)

The income and withholding taxes will appear on your W-2 in the appropriate boxes, as illustrated in another FAQ.

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