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.
ESPP Tax question
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Re: ESPP Tax question
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.
Re: ESPP Tax question
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!!
Thank you so much!!
Re: ESPP Tax question
Are the shares from a qualified or a non-qualified plan?
Re: ESPP Tax question
I assume qualified. I've held these starting at 2016 with the last ones being acquired Jan 2020.
- ClevrChico
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Re: ESPP Tax question
There should be no withholding for a tax qualified plan. If it's not tax qualified, then I believe yes.
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Re: ESPP Tax question
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
Re: ESPP Tax question
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.
I guess it is a tax qualified plan, because the income is always recognized with the sale, not the purchase.