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ESPPs

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.


Articles

ESPPs 101: Taxation Made Simple This is premium content

Your employee stock purchase plan may be one of the best benefits offered by your company. However, to appreciate the advantages of enrolling in the ESPP you must understand the tax consequences of participation. This article explains the tax basics.

VIDEO! Employee Stock Purchase Plans (ESPPs): Taxes

To maximize the benefits of your employee stock purchase plan (ESPP), you must understand the five key tax rules explained in this video. Illustrated by animated examples, the covered concepts include the special rules that depend on how long you hold the shares. Running time: 4:24

Six ESPP Essentials (Part 2): Holding Periods, Tax Treatment, Major Corporate Or Personal Events This is premium content

Your company's employee stock purchase plan (ESPP) can be a strong financial benefit, but the rules and taxation can be tricky. Part 2 delves into the complicated topics of holding periods, tax treatment, and the impact of various life events on your ESPP participation and holdings.
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Fundamentals Of Employee Stock Purchase Plans (Part 3): Tax Treatment Of Your Purchases And Sales This is premium content

Now let's look at the employee tax issues associated with employee stock purchase plans (ESPPs). ESPP tax rules can be more confusing and less logical than those that govern stock options.

ESPP Choices: Flip Or Hold? (Part 1) This is premium content

After you decide to participate in your company's employee stock purchase plan, your next decision is whether to sell the stock soon after purchase or to hold it (and for how long). This article series examines different ways to participate in your ESPP according to relative risk tolerance, timeframe, and needs for money.

IRS Form 3922 For ESPPs: What You Need To Know, And How It Can Help You Understand ESPP Taxation This is premium content

Stock purchases made through an ESPP during a calendar year are reported to you and the IRS on Form 3922 early in the following year. This article explains what you need to know about the information on the form, and how the form can help you better understand the complexities of ESPP taxation.

FAQs

How am I taxed if I participate in a tax-qualified (Section 423) employee stock purchase plan?

You are taxed only at sale, not when the shares are purchased. However, the rules for ESPP taxation are more confusing...

How am I taxed if I participate in a nonqualified employee stock purchase plan?

"Not qualified" means that your company's employee stock purchase plan (ESPP) does not meet the requirements under Section 423 of the Internal Revenue Code. Its mechanics and procedures may be the same as a tax-qualified ESPP, but the favorable tax treatment does not...
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What is an ESPP disqualifying disposition, what can cause it, and why does my company care? This is premium content

A disqualifying disposition occurs when you sell or otherwise...

Do I have to pay tax when stock is purchased for me under the plan? This is premium content

If it's a Section 423 ESPP, no. Although you will acquire stock at a discount from its fair market value...

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...

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

The full spread of any discount between the purchase price and the market price is...

Too much Social Security tax was withheld. How do I recover the excess amount? This is premium content

When too much Social Security tax is withheld above the Social Security wage base during a calendar year, your recovery approach depends on whether...

What is backup withholding? How do I prevent it or recover it? This is premium content

Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other types of payments that are reported on Form 1099. Your brokerage firm is required to make backup withholding if you are...

UPDATES! How does a non-US resident reclaim US backup withholding? This is premium content

If you are a nonresident alien and do not complete and file Form W-8BEN with the IRS upon receiving stock-sale proceeds, such as those stemming from equity awards, your brokerage firm will assess backup withholding on the proceeds. To reclaim backup withholding, take the following steps...

Does the alternative minimum tax (AMT) apply to the ESPP discount spread? This is premium content

In stock compensation, the AMT is a factor only with...

What do I need to know about the information on IRS Form 3922 for ESPPs? This is premium content

Your company is required to file Form 3922 with the IRS and either give you a copy or present the same information on a substitute document. The form contains information about your purchases in your company's tax-qualified ESPP during the prior tax year. With this reporting, the IRS now knows more information about your ESPP purchases than it did before, particularly with regard to your...

W-2 diagram If I make a disqualifying disposition with my ESPP stock, what will appear on my W-2? This is premium content

With a tax-qualified ESPP, nothing appears on your W-2 until you sell the shares. In that year, income is reported in the following boxes of your W-2...

Is transferring ESPP stock into a joint account with my spouse a disqualifying disposition if the stock has not met the holding-period requirements? This is premium content

No. Similarly, the transfer of share certificates into a brokerage account to be held in street name would not be a disposition...

Do the holding-period requirements apply to my ESPP stock after I leave the company? This is premium content

These tax rules do not depend on whether you are employed after your purchase. However, if...

Can I use ESPP shares in a stock-swap exercise of my options? This is premium content

Yes, if your company allows it. When you use your ESPP shares as currency for exercising options, you receive both replacement shares equal to the number you exchanged and the profit shares...