Espp sale considered wage income?

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Patrick584
Posts: 62
Joined: Wed Sep 06, 2017 8:38 pm

Espp sale considered wage income?

Post by Patrick584 »

I’m selling espp shares and a portion of proceeds is treated as ordinary income based on the original discounting. Is this considered wage income for purposes of eitc and Roth wage income max contribution even though the ‘work’ occurred in earlier years?
DoubleComma
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Joined: Sun Aug 23, 2020 2:23 pm

Re: Espp sale considered wage income?

Post by DoubleComma »

In my Mega Corp the 15% discount offered in the ESPP is taxable wage and would impact ROTH earnings eligibility.

However, we capture this 15% at the purchase not the sell. It seems odd to me you would capture it at the sell, but I’m no expert.

For us if the quarterly price is $100, we buy at $85 and taxed for the $15 as income. But our cost basis is reported at the $100, so the LTCG at sell is lower than if we held the shares at $85.
secondcor521
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Joined: Wed Sep 10, 2014 4:11 pm

Re: Espp sale considered wage income?

Post by secondcor521 »

^ That matches my understanding.

When I participated, there was a feedback loop from the ESPP to payroll. My FICA and withholding amounts went up on paychecks when ESPP purchases happened, and that 15% discount (or whatever it ended up being) ended up in my W-2 box 1 wages for the year in which the purchases happened.

So yes, the 15% discount would count for EITC and Roth (and everywhere else impacted by taxable ordinary income), but in the earlier year of purchase, not the year of sale (unless the year of sale and the year of purchase were the same year).
Topic Author
Patrick584
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Joined: Wed Sep 06, 2017 8:38 pm

Re: Espp sale considered wage income?

Post by Patrick584 »

Thanks for the replies. For clarity, you are saying that the discount was already likely taxed at purchase. The fidelity portal doesn’t have much useful. Just cost basis, which is at discounted price. For sale, will I get year end tax statement from fidelity and employer? What will be on these statements?
dboeger1
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Joined: Fri Jan 13, 2017 7:32 pm

Re: Espp sale considered wage income?

Post by dboeger1 »

Patrick584 wrote: Mon Sep 13, 2021 9:52 pm Thanks for the replies. For clarity, you are saying that the discount was already likely taxed at purchase. The fidelity portal doesn’t have much useful. Just cost basis, which is at discounted price. For sale, will I get year end tax statement from fidelity and employer? What will be on these statements?
Generally, yes, it counts as income the moment you get the shares. It's logical, if you think about it. It may not be cash, but it's compensation with a cash value that you are given at the time of purchase. Not getting taxed on it would be like getting to defer taxes on your salary just because you're buying stocks with it (which is, of course, exactly what a traditional 401k or IRA does). ESPP is not another tax-advantaged account.
idunno246
Posts: 20
Joined: Fri Nov 19, 2010 6:59 pm

Re: Espp sale considered wage income?

Post by idunno246 »

that's not how my espp worked - the discount was added to w2 on sale. you can see in the first situation on https://turbotax.intuit.com/tax-tips/in ... /L8NgMFpFX, purchase in 2019 sold in 2020 but 2020 is when the tax was added. espp rules are crazy
dbr
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Re: Espp sale considered wage income?

Post by dbr »

In any case I would think the issue is settled by what appears on your W2.

I would have thought that would always be when the granted shares vest, which could be immediately.

Has there been a notice or report on a pay stub. The W2 does not specify when during the tax year the income was earned, but a report of taxes withheld should come out with every pay period and show something.
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FiveK
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Re: Espp sale considered wage income?

Post by FiveK »

Depends on whether your plan is "qualified" or "non-qualified". See Employee Stock Purchase Plans FAQs - Fidelity for a decent overview.

In general, The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Do you know how your payroll department will report this?

See also Your 1099-B form for an ESPP sale will probably be wrong. Doesn't apply to your specific question, but might be of interest.
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