Employee Stock Purchase Program Facts:
- These plans vary greatly from company to company, make sure you know the rules of YOUR plan
- These are non-retirement accounts
- After tax dollars are used to purchase company shares (usually at a discount)
- Regardless on how long you hold the stock, if you sell it with a gain your discount will be taxed at ordinary income levels
- Example: Your company offers a 10% discount
- You buy 5 shares of stock currently at a FMV of $100. You pay $90/share because of the 10% discount
- After 4 years you sell the stock for $130/share
- You pay your normal income tax rate on the discount you received ($50)
- You pay capital gains on the growth from the initial FMV to the sell price ($130-$100=$30 x 5 shares = $150)
- If you sell less than 1 year after purchase or less than 2 years after offering date, you will be taxed at your normal income tax rate