ESPPs: Taxes

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Articles (Jump to FAQs)

Fundamentals Of Employee Stock Purchase Plans (Part 3): Tax Treatment Of Your Purchases And Sales

Alisa Baker
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.

Fundamentals Of Employee Stock Purchase Plans (Part 4): Down Markets And Other Tax Topics

Alisa Baker
In Part 4 we consider the taxation of employee stock purchase plans (ESPPs) that are not qualified under Section 423, and the tax issues of down markets, death, and withholding.

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FAQs (Jump to articles)

What are the eventual tax consequences of participating in a tax-qualified employee stock purchase plan (ESPP)?

The rules of ESPP taxation are more confusing than those of stock options and restricted stock. You are not taxed when the shares are purchased: only at...

My company's ESPP is not tax-qualified under Internal Revenue Code Section 423. What is the tax treatment for a stock purchase and sale?

"Not qualified" means that your company did not set it up to meet the requirements in Section 423 of the Internal Revenue Code...

My ESPP has no discount apart from my company's elimination of any fees, such as the broker's commission. Is this taxable?

The company's handling of any commission or other fees is not...

How long must I hold shares purchased under a Section 423 ESPP to receive favorable tax treatment?

To get favorable long-term capital gains treatment...

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

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

Are taxes withheld from the spread when you buy stock under a tax-qualified employee stock purchase plan?

The IRS wanted to require withholding, but the American Jobs Creation Act specifically excludes...

Will my company withhold taxes at the sale of stock that I purchased under my employee stock purchase plan?

In these situations most employers do not...

Did Congress or the IRS change the withholding rules that apply to ISOs and ESPPs?

Fortunately, the American Jobs Creation Act of 2004 specifically...

Does the alternative minimum tax (AMT) apply to the ESPP discount spread?

No. Worry about the AMT only with...

Are pre- or post-tax dollars used to purchase the stock in the ESPP? Is the salary used to purchase stock still included in my income?

The amount withheld consists of...

What is an ESPP "disqualifying disposition," what can cause it, and why does my company care?

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

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

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

In a divorce agreement, how is my ESPP treated? Is transferring to my former spouse ESPP stock that has not met the holding period a disqualifying disposition?

ESPPs almost never allow the option/purchase rights to be transferred during...

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

These tax rules do not depend on...

Can I use ESPP shares in a stock-swap exercise of my options?

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...

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