ESPP purchase doesn't add up

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
fantasytensai
Posts: 475
Joined: Fri Sep 30, 2016 3:30 pm

ESPP purchase doesn't add up

Post by fantasytensai » Tue Oct 23, 2018 7:35 pm

Hi guys, I just made my first ESPP purchase. Basically, it's a very mediocre one with 5% discount, but still better than nothing. But I just saw my first transaction and something doesn't add up.

Date FMV Purchase Amount Purchase Price Shares Purchased
15 Oct 2018 PURCHASE 141.2000 359.83 134.1400 2.638

134.14 is a 5% discount from 141.2, that's correct. But for $359.83, divided by $134.14 purchase price, there should be 2.682 shares, not 2.638. Did I miss something here with my lack of understanding of ESPP? Would greatly appreciate it if a seasoned investor could let me know. Thanks!

viz
Posts: 146
Joined: Fri May 04, 2018 11:22 pm

Re: ESPP purchase doesn't add up

Post by viz » Tue Oct 23, 2018 7:38 pm

fantasytensai wrote:
Tue Oct 23, 2018 7:35 pm
Hi guys, I just made my first ESPP purchase. Basically, it's a very mediocre one with 5% discount, but still better than nothing. But I just saw my first transaction and something doesn't add up.

Date FMV Purchase Amount Purchase Price Shares Purchased
15 Oct 2018 PURCHASE 141.2000 359.83 134.1400 2.638

134.14 is a 5% discount from 141.2, that's correct. But for $359.83, divided by $134.14 purchase price, there should be 2.682 shares, not 2.638. Did I miss something here with my lack of understanding of ESPP? Would greatly appreciate it if a seasoned investor could let me know. Thanks!
Is there any fees associated with the purchase??

fantasytensai
Posts: 475
Joined: Fri Sep 30, 2016 3:30 pm

Re: ESPP purchase doesn't add up

Post by fantasytensai » Tue Oct 23, 2018 7:46 pm

viz wrote:
Tue Oct 23, 2018 7:38 pm
fantasytensai wrote:
Tue Oct 23, 2018 7:35 pm
Hi guys, I just made my first ESPP purchase. Basically, it's a very mediocre one with 5% discount, but still better than nothing. But I just saw my first transaction and something doesn't add up.

Date FMV Purchase Amount Purchase Price Shares Purchased
15 Oct 2018 PURCHASE 141.2000 359.83 134.1400 2.638

134.14 is a 5% discount from 141.2, that's correct. But for $359.83, divided by $134.14 purchase price, there should be 2.682 shares, not 2.638. Did I miss something here with my lack of understanding of ESPP? Would greatly appreciate it if a seasoned investor could let me know. Thanks!
Is there any fees associated with the purchase??
It was never disclosed that there would be, but that would appear to be it. That would be really deceptive lol it's already a really terrible discount to begin with.

Iridium
Posts: 286
Joined: Thu May 19, 2016 10:49 am

Re: ESPP purchase doesn't add up

Post by Iridium » Tue Oct 23, 2018 7:52 pm

The only way it makes any sense at all to me is if they charged you a ~$6 commission for purchasing the shares, which would be pretty bizarre.

I would expect that all the reports are generated automatically, which makes it so odd that there appears to be a math mistake. I even tried some of the formulas they could have used to get a wrong answer, but still could not match their number.

I would be really curious to hear what HR has to say. In all likelihood, this mistake impacts their own ESPP distributions, so the optimist in me thinks they would be happy for someone to ask how they got their numbers.

fantasytensai
Posts: 475
Joined: Fri Sep 30, 2016 3:30 pm

Re: ESPP purchase doesn't add up

Post by fantasytensai » Tue Oct 23, 2018 8:13 pm

Iridium wrote:
Tue Oct 23, 2018 7:52 pm
The only way it makes any sense at all to me is if they charged you a ~$6 commission for purchasing the shares, which would be pretty bizarre.

I would expect that all the reports are generated automatically, which makes it so odd that there appears to be a math mistake. I even tried some of the formulas they could have used to get a wrong answer, but still could not match their number.

I would be really curious to hear what HR has to say. In all likelihood, this mistake impacts their own ESPP distributions, so the optimist in me thinks they would be happy for someone to ask how they got their numbers.
Could it be tax withholdings?

regularguy455
Posts: 54
Joined: Tue Jul 18, 2017 2:08 pm

Re: ESPP purchase doesn't add up

Post by regularguy455 » Tue Oct 23, 2018 8:17 pm

My ESPP takes the average daily price on the final trading day, not the closing price. Maybe that’s what’s going on?

fantasytensai
Posts: 475
Joined: Fri Sep 30, 2016 3:30 pm

Re: ESPP purchase doesn't add up

Post by fantasytensai » Tue Oct 23, 2018 8:20 pm

regularguy455 wrote:
Tue Oct 23, 2018 8:17 pm
My ESPP takes the average daily price on the final trading day, not the closing price. Maybe that’s what’s going on?
I'm pretty sure that's not. They clearly labeled the "purchase price"

Iridium
Posts: 286
Joined: Thu May 19, 2016 10:49 am

Re: ESPP purchase doesn't add up

Post by Iridium » Tue Oct 23, 2018 8:33 pm

fantasytensai wrote:
Tue Oct 23, 2018 8:13 pm
Iridium wrote:
Tue Oct 23, 2018 7:52 pm
The only way it makes any sense at all to me is if they charged you a ~$6 commission for purchasing the shares, which would be pretty bizarre.

I would expect that all the reports are generated automatically, which makes it so odd that there appears to be a math mistake. I even tried some of the formulas they could have used to get a wrong answer, but still could not match their number.

I would be really curious to hear what HR has to say. In all likelihood, this mistake impacts their own ESPP distributions, so the optimist in me thinks they would be happy for someone to ask how they got their numbers.
Could it be tax withholdings?
Interesting... The amount is in the right ballpark if they were withholding on the money you made off the discount. However, that practice would be just wrong. With an ESPP, you pay taxes on the discount when you sell, not when you buy, so there should not be anything to withhold.

The only way they should withhold now is if this is not actually an ESPP, but is some weird employ stock purchase arrangement that is not qualified to be an ESPP.

It is HR's job to explain what is going on. While it is fun for us Internet strangers to guess, none of us are going to come up with a definitive answer. Your situation is definitely weird.

fantasytensai
Posts: 475
Joined: Fri Sep 30, 2016 3:30 pm

Re: ESPP purchase doesn't add up

Post by fantasytensai » Tue Oct 23, 2018 8:51 pm

Iridium wrote:
Tue Oct 23, 2018 8:33 pm
fantasytensai wrote:
Tue Oct 23, 2018 8:13 pm
Iridium wrote:
Tue Oct 23, 2018 7:52 pm
The only way it makes any sense at all to me is if they charged you a ~$6 commission for purchasing the shares, which would be pretty bizarre.

I would expect that all the reports are generated automatically, which makes it so odd that there appears to be a math mistake. I even tried some of the formulas they could have used to get a wrong answer, but still could not match their number.

I would be really curious to hear what HR has to say. In all likelihood, this mistake impacts their own ESPP distributions, so the optimist in me thinks they would be happy for someone to ask how they got their numbers.
Could it be tax withholdings?
Interesting... The amount is in the right ballpark if they were withholding on the money you made off the discount. However, that practice would be just wrong. With an ESPP, you pay taxes on the discount when you sell, not when you buy, so there should not be anything to withhold.

The only way they should withhold now is if this is not actually an ESPP, but is some weird employ stock purchase arrangement that is not qualified to be an ESPP.

It is HR's job to explain what is going on. While it is fun for us Internet strangers to guess, none of us are going to come up with a definitive answer. Your situation is definitely weird.
Actually, that makes perfect sense. The ESPP paperwork told me to send in a W-9. I just checked the paperwork and it says if it does not certify my SSN, my account may be subject to backup withholding at hte applicable tax rate on all dividends and sale proceeds. That would explain it, thanks internet stranger!

Tamales
Posts: 1314
Joined: Sat Jul 05, 2014 10:47 am

Re: ESPP purchase doesn't add up

Post by Tamales » Tue Oct 23, 2018 9:01 pm

But you're calculating it should have been fewer shares, not that some fractional shares you were expecting to get are "missing."

inbox788
Posts: 5693
Joined: Thu Mar 15, 2012 5:24 pm

Re: ESPP purchase doesn't add up

Post by inbox788 » Wed Oct 24, 2018 2:04 am

fantasytensai wrote:
Tue Oct 23, 2018 8:51 pm
Actually, that makes perfect sense. The ESPP paperwork told me to send in a W-9. I just checked the paperwork and it says if it does not certify my SSN, my account may be subject to backup withholding at hte applicable tax rate on all dividends and sale proceeds. That would explain it, thanks internet stranger!
I was wondering why they would be withholding less than 2%, but it occurred to me that the 5% discount is considered additional income, so it's only on the 5% gain that they're withholding about 30% of that. Share withholding, so they sold off some share to pay the feds. You'll get that cash back when you file taxes (or it will apply to the extra tax due on the extra 5% income you got).

User avatar
dratkinson
Posts: 4383
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: ESPP purchase doesn't add up

Post by dratkinson » Wed Oct 24, 2018 5:22 am

Not a seasoned investor. No experience with to ESPP.


Tax on sale. I looked at my 2016 1099B (most recent) and see box 4 is for any Fed Tax Withheld.


Tax on purchase. But how is an ESPP discount taxed and reported on a purchase?

See: http://www.google.com/search?q=How+is+E ... xed%3F+W-2

Above says, since discount is considered to be ordinary income, it is reported on W-2 and tax is withheld. This could lead to double-taxation if taxed on W-2 reporting, and again on 1099B reporting.

So it looks like, after OP enters his 1099B sale into the tax s/w, he'll need to make an adjustment on Form 8949 (column f "code": Q? maybe; column g "amount of discount": -$7.06=134.14-141.20) to offset the discount reported as ordinary income on W-2.

See "Column (g)—Adjustments to Gain or (Loss)" here: https://www.irs.gov/instructions/i8949# ... 3115159504

(This seems to be a memory item for OP; forget and pay double tax on the discount. If employee discount is 5% and less than OP's tax bracket, then would seem to be losing money if double-taxed.)

Then the 1040 processing should net everything (discount reported and taxed as ordinary income on W-2; ESPP sale, less discount, taxed as STCG on Sch D*) and give OP a tax refund for any over withholding, or a tax bill for any under withholding. (* Recall a recent topic in which it was claimed the biggest bang for the invested buck came from selling ESPP shares immediately.)

I'd ask HR to confirm this, as I'm just guessing.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

tmcc
Posts: 162
Joined: Tue Feb 06, 2018 6:38 pm

Re: ESPP purchase doesn't add up

Post by tmcc » Wed Oct 24, 2018 6:52 am

the difference could be the FMV at time of grant and what you were being taxed at versus FMV when you checked it.... if the share count is OK, then you're fine. if you use the price to back into what share count should have been, you might be off due to timing.

Post Reply