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Test Your Knowledge: ESPP Quiz
How much do you know about your employee stock purchase plan? Please answer the following 10 questions. This quiz is also a course of study. The answer key links to content on the topic for follow-up reading.

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1. What is an employee stock purchase plan?
A program in which stock is granted with restrictions on sale and a risk of forfeiture until it has vested by continued employment or by reaching a performance target
A contractual right your company grants you to purchase a specified number of shares of the company's stock at a specified price for a specified period (generally five or ten years)
A plan that provides for regular, ongoing purchases of company stock, usually through accumulated post-tax payroll deductions
A type of incentive grant in which you are not issued actual shares of stock on the grant date but receive instead an account credited with a certain number of hypothetical shares
 
 
2. Which of the following is an employee stock purchase plan that is tax-qualified for special treatment under the Internal Revenue Code?
Section 423 plan
Section 83(b) plan
Rule 10b5-1 trading plan
Rule 144 plan
 
 
3. What benefit does an employee stock purchase plan offer if it meets certain qualifications set by the Internal Revenue Code?
Sales (but not purchases) are tax-free if certain holding periods are met
Taxes are deferred until sale, and then all gain is ordinary income
All income is treated as capital gain
No taxes at purchase; long-term capital gains for most of your sale profits if certain holding periods are met
 
 
4. What happens during an offering period?
The company enrolls employees in the ESPP
The company accumulates payroll deductions
The company determines the purchase price of the stock
The company offers employees a choice of stock options or its ESPP
 
 
5. Can you withdraw from an employee stock purchase plan at any time?
No, you are locked in until you leave the company or retire
Yes, but only before the purchase (or exercise) date
Yes, you may withdraw at any time
Yes, but in a tax-qualified ESPP you must pay a penalty to the IRS for early withdrawal
 
 
6. When stock is purchased in an employee stock purchase plan that is not tax-qualified under IRC Section 423, what is the tax treatment of the spread between the actual purchase and the market price at purchase?
It is taxed at the 20% short-term capital gains rate
It is taxed at the 15% long-term capital gains rate
It is taxed as ordinary income, and there is withholding
It is taxed as ordinary income, but there is no withholding
 
 
7. What is the purchase price based on if the plan has a look-back feature?
The market price at the start of the purchase period
The market price at the start or end of the offering period, whichever is lower
The market price at the start or end of the purchase period, whichever is lower
FMV on the last business day of the previous quarter
 
 
8. In a tax-qualified employee stock purchase plan, what is the maximum amount of stock you can purchase during one calendar year?
$100,000
$25,000
$17,500
$15,000
 
 
9. When are participants taxed in a tax-qualified employee stock purchase plan?
Never
At purchase
At purchase and sale
At sale
 
 
10. How long do you have to hold stock in a tax-qualified employee stock purchase plan to get favorable treatment of capital gains?
One year from the purchase date and two years from the grant (or enrollment) date
Two years from the purchase date and three years from the grant (or enrollment) date
Six months from the purchase date
One year from the grant (or enrollment) date
 
 
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