What is your ESPP discount really worth, and when should you sell?
An employee stock purchase plan lets you buy company stock at a discount, often 15% off the lower of two prices. That discount is close to free money if you understand two things: what the return actually is on the cash you put in, and how the tax treatment changes depending on when you sell. Enter your plan’s numbers to see both.
Your plan and purchase
Sell now vs. hold for qualifying treatment
A qualifying disposition needs two years from the offering date and one year from purchase. It changes how much of your profit is ordinary income versus long-term capital gain. Both paths below assume you sell at the price you entered.
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How ESPP taxes work
The discount is compensation, so some of your profit is always ordinary income. How much depends on timing. Sell before the holding periods are met and the whole spread between the purchase-date price and what you paid is ordinary income, with anything above that a capital gain. Meet both holding periods and the ordinary income portion is capped at the discount measured on the offering date (or your actual gain, if smaller); everything else is long-term capital gain.
The discount is never tax-free
Unlike a 401(k) match, the ESPP discount is taxable compensation when you sell. The question is only whether it is taxed at ordinary rates or partly at capital-gains rates.
Holding is a bet on the stock
Waiting a year for better tax treatment means holding a concentrated position for a year. If the stock falls more than the tax you save, you lose. Many people sell at purchase and diversify.
Watch the W-2
In a disqualifying sale the ordinary income shows up on your W-2 but your brokerage 1099-B often reports the discounted price as your cost basis. Adjust the basis or you pay tax twice.
Deciding whether to hold or sell?
We help Apple, Intuit and other tech employees fold ESPP purchases into a broader plan for taxes and concentration. Bring your plan document and recent purchase confirmations.