ESPP

A plan runs in offering periods with one or more purchase dates inside each. Contributions come out of pay, and on the purchase date the accumulated cash buys shares at the discounted price. A plan with a lookback prices the shares off the lower of the offering-start price and the purchase-day price.

An ESPP is not a grant. Shares are bought with the employee's own money, and what the company gives is the discount. The tax rules for a plan under Section 423 of the US tax code cap the discount at 15%, cap purchases at $25,000 of stock a year measured at the grant-date price, and tax the discount at the sale, not the purchase.

How much of a sale is ordinary income and how much is capital gain depends on when the shares are sold. A qualifying disposition, more than two years after the grant date and more than one year after the purchase, caps the ordinary part at the plan's discount measured at the grant-date price. A sale before either date is a disqualifying disposition. The grant date is the offering's first day when the plan caps the shares each employee may buy in that offering, and otherwise the purchase date.

A plan gives 15% off the purchase-day price, with no lookback. Over one purchase period $4,250 is withheld from pay, and on the purchase date the stock is at $25, so the price is $21.25 and the cash buys 200 shares.

At $25 a share the lot is worth $5,000 on the day it is bought. The $750 between that and the $4,250 paid is the discount captured, and it is not taxed until the shares are sold.

FMV on the purchase day

$25.00

× 85%, the purchase price

$21.25

$4,250 ÷ $21.25

200 sh

Value at purchase-day FMV

$5,000

Paid

− $4,250

Discount captured

$750

The discount is compensation, and it lands in the year of the sale. A qualifying sale treats at most the plan's discount, measured at the grant-date price, as ordinary income and the rest as long-term capital gain. A disqualifying sale treats the whole purchase-day discount as ordinary income, whatever the sale price, and only the movement after the purchase as capital gain or loss.

The shares are a position in one company, the employer, on top of a salary from the same company. The contributions also come out of take-home pay for months before any share is bought.

Taiga Finance shows an ESPP as a grant of its own: Held, Value held at the current price, Discount captured with the line “purchase-day FMV minus price paid”, and Next purchase. Its purchase history lists lots by date with Paid / sh, FMV then and a Qualifies column: the date a lot qualifies, or the tag QUALIFIED once it has. The grant record keeps the offering start, the purchase cadence, the discount, whether the plan has a lookback and the annual cap.

A sale planner, labeled an estimate, prices a sale of any lots on any date as ordinary income and capital gain, qualifying or not. A recorded purchase is a fact; a future purchase is only projected, at today's price, and a year whose purchases may pass the plan's annual cap, $25,000 unless the plan sets a lower one, gets a warning.