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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 a tax-qualified employee stock purchase plan? Do FICA taxes apply?
There is no withholding at purchase when shares are bought through a tax-qualified ESPP. However, when you sell the shares, income will be reported on your W-2, and you must report the sales on your tax return.

Most states follow the federal rules and do not require withholding. Pennsylvania, however, does require withholding at purchase (see Pennsylvania Personal Income Tax No. PIT-03-037).

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