Employee Stock Purchase Plans 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. For in-depth courses of study that offer CE credits, see the myStockOptions Learning Center.

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 lookback 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 higher The market price at the start of the offering period or on the purchase date, 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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