Employee Stock Purchase Programs

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