ESPP

Question 1

ESPP max contribution

Answer 1

$25k/year, based on the stock’s FMV at start of offering, not the purchase price

Sometimes companies limit as percentage of employee salary

Question 2

ESPP Enrollment Period

Answer 2

Employees can signup to participate in the ESPP and decide how much of paycheck should be put into it

Question 3

ESPP Offering Period

Answer 3

Duration of time that employees can purchase the stock (typically 6-24 month period)

Question 4

ESPP Lookback Provision

Answer 4

Allows purchase price to be based on the lower of:
- stock’s FMV at the start of offering period or
- stock’s FMV on purchase date

Question 5

ESPP Discount/Bargaining Element

Answer 5

Typically up to 15% of FMV

Question 6

ESPP Qualifying Disposition

Answer 6

Shares held for at least 2 years from the start of offering period, and 1 year from purchase date

Question 7

ESPP Qualifying Disposition Tax Treatment

Answer 7

• Bargain element taxed as ordinary income
• Any additional gain taxed as LTCG
• If sold at a loss, it’s a capital loss

Question 8

ESPP Disqualifying Disposition Tax Treatment

Answer 8

• Bargain element taxed as ordinary income
• Additional gain/loss taxed as short-term or long-term depending on how long it’s been held before sale

Question 9

When are taxes paid on ESPP?

Answer 9

At sale, bargain element is ordinary income, and capital gains above FMV at the start of the offering period

Question 10

ESPP Employer Tax Form

Answer 10

Form 3922

Details offering date, purchase date, FMV, shares purchased, and purchase price

Question 11

ESPP generally recommended strategies for divesting

Answer 11

Hold for qualifying disposition

Sell immediately since no capital gains above FMV