Your plan bought the stock at a discount. Here is what you keep.

The facts, in one place.

Six quotable sentences on employee stock purchase plans.

1. An employee stock purchase plan under § 423 lets you buy your employer's stock through payroll deductions at a discount of up to 15%, measured on the day the offering began or the day the shares are bought; a plan with a lookback uses the lower of the two prices (§ 423(b)(6)).
2. The deductions come out of pay that has already been taxed, and nothing is taxed when the shares are bought. The discount becomes taxable only when the shares are sold, and the employer reports each first transfer on Form 3922 (§ 423, § 6039; Pub. 525).
3. No employee may buy more than $25,000 of stock a year, valued on the day the offering began, under all of the employer's plans together; the figure is in the statute and does not rise with inflation. An employee who owns 5% or more of the company may not take part (§ 423(b)(3), (b)(8)).
4. Sold after the qualifying date, 2 years from the start of the offering and 1 year from the purchase, the part taxed as wages is the lesser of the discount measured on the offering date or the actual gain; the rest is long-term capital gain, and a sale below the price paid is all capital loss with no wages at all (§ 423(a), (c); Pub. 525).
5. Sold before the qualifying date, the whole discount on the purchase day is wages even if the stock has since fallen, and the rest is capital gain or loss measured from the purchase-day value (Pub. 525).
6. Example: $10,000 buys 235 shares at $42.50 when the stock was $50 at the start and $60 on purchase day, 15% off the lower price. Sold at $60 that day at a 32% rate, the tax is $1,316 and you keep $2,797 over what you put in. Waiting for the qualifying date and selling at the same price would cut the tax to $917, a saving a drop to $58.00 erases.

The two routes by sale price.

How the tax on the same sale changes with the holding period, and how little of the gain is tax to begin with.

How the tax works.

A plan under § 423 takes after-tax money from each paycheck for an offering period, then buys the employer's shares for you at a discount of up to 15%, measured on the day the offering began or the day the shares are bought. A plan with a lookback uses the lower of the two prices, so in a rising market the discount is larger than the stated percentage. Nothing is taxed when the shares are bought. The employer reports the first transfer on Form 3922, which carries the two dates, the two values, and the price you paid.

What happens at sale depends on the date. Sold before 2 years from the start of the offering and 1 year from the purchase, the whole discount on purchase day is wages, whatever the stock has done since, and the rest is capital gain or loss from the purchase-day value, short-term if sold within a year. Sold after both dates have passed, the wages part is capped at the discount measured on the offering date, and the rest is long-term capital gain; a sale below the price paid is a capital loss with no wages at all. The calculator prices one purchase both ways at the same sale price and finds the sale price at which waiting stops paying. The $25,000 yearly limit, measured at the offering-date value, caps how much of this any one employee can do.

Methodology.

1. Inputs. The stock price on the offering date and on the purchase date, the plan's discount and whether it has a lookback, the dollars withheld, a sale price, and your ordinary and long-term capital gains rates.
2. The purchase. Price paid = (the lower of the two prices with a lookback, else the purchase-date price) × (1 − discount), the discount capped at 15% (§ 423(b)(6)). Whole shares = withheld ÷ price paid, rounded down; the remainder carries forward.
3. Sold within a year. Wages = (purchase-date value − price paid) × shares, not limited to the gain (Pub. 525); capital gain or loss = (sale price − purchase-date value) × shares, taxed at the ordinary rate as short-term. A loss is assumed usable.
4. After the qualifying date. Wages = the lesser of (sale price − price paid) and (offering-date value − price paid), per share, floored at zero (§ 423(c)); the rest of (sale price − price paid) is long-term gain or loss at the gains rate.
5. The comparison. Saving by waiting = tax sold within a year − tax after the qualifying date, at the same sale price. The break-even is the later-route sale price whose after-tax proceeds equal selling now, found by bisection.
6. Validation. Pub. 525 Examples 10 and 11 reproduced to the dollar ($200 wages and $800 gain; $300 wages and $700 gain), a lookback purchase summed by hand, a sale below the price paid, a plan with no discount, and the statutory cap on the discount. A transcription error fails the build.
7. Not modeled. State tax, the 3.8 percent surtax, dividends, the $25,000 limit, the risk of holding one stock while waiting, the time value of the tax deferred, a disqualifying sale more than a year after purchase, and leaving the company before the purchase. Educational, not advice.

Sources.

1. 1. United States Code (Cornell LII), 26 U.S.C. § 423 — Employee stock purchase plans. The holding periods for a qualifying disposition, 2 years from grant and 1 year from transfer (a)(1); the 5 percent owner exclusion (b)(3); the 85 percent floor on the option price, hence the 15 percent maximum discount, measured at grant or at exercise (b)(6); the $25,000 per calendar year limit at grant-date value (b)(8); and the rule that on a qualifying disposition the compensation income is the lesser of the gain at disposition or the discount measured at grant, with the option price figured as if exercised at grant when it is not fixed (c). Retrieved October 29, 2026; verified October 29, 2026.
2. 2. Internal Revenue Service, Publication 525, Taxable and Nontaxable Income — Employee stock purchase plan. That the basis is the option price paid, that payroll-deduction timing does not affect basis, the holding-period-satisfied rule (compensation is the lesser of the grant-date discount or the gain, the rest capital gain, a loss all capital loss with no ordinary income), the holding-period-not-satisfied rule (compensation is the purchase-date value over the price paid, not limited to the gain, added to basis), and Examples 10 and 11, which pin the engine ($200 wages and $800 gain; $300 wages and $700 gain on 100 shares). Retrieved October 29, 2026; verified October 29, 2026.
3. 3. Internal Revenue Service, Topic No. 427, Stock options. That nothing is included in income when a statutory option is granted or exercised, that income or loss arises on sale, that the amount treated as wages is added to the basis, and that the employer reports the first transfer of ESPP shares on Form 3922. Retrieved October 29, 2026; verified October 29, 2026.
4. 4. Internal Revenue Service, About Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c). That the employer files Form 3922 for each transfer of ESPP shares, the form the reader will have in hand with the grant date, the purchase date, the two values, and the price paid. Retrieved October 29, 2026; verified October 29, 2026.

Revision history.

The record's history.

October 29, 2026

First release: the after-tax value of one ESPP purchase sold within a year against a sale after the qualifying date at the same price, the tax saved by waiting, and the price at which waiting stops paying.

Canonical address: https://consideratecapital.com/tools/espp-calculator