ESPPs

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ESPPs › Taxes

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Listen to our podcast on the basics, or watch our videos on the core concepts and benefits, important rules, and tax issues for ESPPs.

Articles

ESPPs 101: Taxation Made Simple

The myStockOptions Editorial Team

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.

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

Bruce Brumberg

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.

VIDEO! Employee Stock Purchase Plans (ESPPs): Taxes

Bruce Brumberg

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

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

The myStockOptions Editorial Team

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.

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.

ESPP Choices: Flip Or Hold? (Part 1)

Timothy A. Farmer and Gregory G. Geisler

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.

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...

For 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...

W-2 diagram If I sell ESPP shares after the required holding periods, what will appear on my W-2? What if income is missing from the form?

If you sell ESPP shares in a qualifying disposition, you still...

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

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...

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...

W-2 diagram My company's employee stock purchase plan is not tax-qualified under Section 423 of the Internal Revenue Code. What will my W-2 show after an ESPP purchase?

The gain from your ESPP purchase is totaled on the W-2 with other income in the following boxes...

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

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...

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...

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...

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 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?

In a nonqualified ESPP, 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?

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

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...

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

Backup withholding is a form of tax withholding on income from stock sales, along with interest income, dividends, or other payments that are reported on...

How does a non-US resident reclaim US backup withholding?

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?

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

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 whether you are employed after your purchase. However, if...

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...