Broker Check
Staying Informed About ESPP Tax Rules

Staying Informed About ESPP Tax Rules

February 21, 2023

Have you worked for a company offering stock at a discount? Or do you know anyone who does? These can be solid assets to hold in your portfolio, but they’re not without some degree of complexity. We’ll give you the short and simple version here.

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ESPPs stands for Employee Stock Purchase Plans, which allow you to buy shares of your employers’ stock by using after-tax payroll deductions. They can be a great way to share in the successes of a company’s profitability over a specific holding period timeframe.

ESPP Basics

Employees who decide to participate in their company’s ESPP as part of their compensation can do so after the offering period begins. On the application for enrollment into the ESPP, employees should state how much they want to contribute to the plan. After each pay period, an employee’s contributions are then placed in an account until the purchase date (when the company stock is actually bought). The company stock is held in separate employee accounts or with a brokerage firm until the employee decides to sell their shares and collect their proceeds.

ESPP Tax Rules

There are four tax factors when it comes to selling ESPP stocks:

  1. How long you hold the stock
  2. Purchase price of the stock (considering any company discount)
  3. Closing stock price on the offering date
  4. Closing stock price on the purchase date

There’s a lot to consider when an employer offers these types of plans. Everything from holding periods, qualifying, and disqualifying dispositions and tax implications should be considered. They can be great investments, but whether they can help one reach their unique goals is something best determined as part of an overarching financial strategy. If you or any loved ones ever have questions about opportunities with ESPPs, let’s talk.

This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.

For discussion purposes only and in no way represents legal or tax advice. For advice regarding your specific circumstances, the services of an appropriate legal or tax advisor should be sought.