ESPP Tax question

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lvswts
Posts: 81
Joined: Tue Nov 26, 2019 12:18 pm

ESPP Tax question

Post by lvswts »

I have some ESPP shares that I continue to hold from a company that I retired from?

I think I understand that the difference between the Fair Market Value and the purchase price is to be treated as income. If I decide to sell, the difference between the sale price and the purchase price will be treated as capital gains.

My question is, would it be normal for the company to have already included the stock ESPP "income" part in my paycheck while I was working and as a result withhold taxes?

I guess my question I am trying to answer is, if I already pay income tax on the "income" part of these ESPP shares in the years while I was working for them? I'm trying to determine if I want to continue to hold these shares or not. I have a fair amount of tax loss harvest carryover from last year so the capital gain part isn't very relevant (at least from the federal perspective), but the income part may be problematic for me as I am trying to stay under the 22% tax bracket.

I retired a couple years ago and no longer have access to the ADP site to see my previous pay stubs.

Perhaps it varies by company but would it be normal for them to have accounted for the income part?

Thanks for your input.
ducksauce9
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Joined: Mon Jun 02, 2014 10:12 am

Re: ESPP Tax question

Post by ducksauce9 »

The company would include in income the salary that you used to buy shares under the ESPP at the time the salary was paid. The ESPP discount should only be included in W-2 income at the time the shares are sold.
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FiveK
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Re: ESPP Tax question

Post by FiveK »

Topic Author
lvswts
Posts: 81
Joined: Tue Nov 26, 2019 12:18 pm

Re: ESPP Tax question

Post by lvswts »

ok. I'll factor that into my decision about the timing of when/if I want to sell these shares then.

Thank you so much!!
Soaky
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Joined: Sat Feb 25, 2023 5:24 pm

Re: ESPP Tax question

Post by Soaky »

Are the shares from a qualified or a non-qualified plan?
Topic Author
lvswts
Posts: 81
Joined: Tue Nov 26, 2019 12:18 pm

Re: ESPP Tax question

Post by lvswts »

I assume qualified. I've held these starting at 2016 with the last ones being acquired Jan 2020.
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ClevrChico
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Re: ESPP Tax question

Post by ClevrChico »

lvswts wrote: Mon Mar 20, 2023 3:07 pm My question is, would it be normal for the company to have already included the stock ESPP "income" part in my paycheck while I was working and as a result withhold taxes?
There should be no withholding for a tax qualified plan. If it's not tax qualified, then I believe yes.
tortoise84
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Joined: Thu Nov 19, 2020 10:03 pm

Re: ESPP Tax question

Post by tortoise84 »

lvswts wrote: Mon Mar 20, 2023 3:59 pm I assume qualified. I've held these starting at 2016 with the last ones being acquired Jan 2020.
Don't just assume, because this is the crucial difference.

For a Section 423 Qualified ESPP, you pay ordinary income taxes on the discount when you sell the stock, and capital gains tax on the remainder. Furthermore, these plans have a thing called a qualifying or disqualifying disposition depending on how long you held the stock, so don't get this term mixed up with qualified plan.

For a non-qualified ESPP, you pay ordinary income taxes and FICA on the discount when you buy the stock. You pay capital gains tax when you sell the stock.

Some references:
https://www.fidelity.com/go/stock-plan- ... ding-taxes
https://workplaceservices.fidelity.com/ ... elines.pdf
https://workplaceservices.fidelity.com/ ... P_QUAL.pdf
https://workplaceservices.fidelity.com/ ... SPP_NQ.pdf
evancox10
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Re: ESPP Tax question

Post by evancox10 »

In my plan there is no withholding for the tax on the ordinary income recognized when selling ESPP shares. The broker tells my employer about the sale, and the income makes it onto my W2 and paycheck stub (informational only), but no withholding.

I guess it is a tax qualified plan, because the income is always recognized with the sale, not the purchase.
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