Tax Time Is Time for Errors on ESPP Tax Calculations

The taxation of employee stock purchase plans (ESPPs) is sufficiently complex that even people who know the field sometimes get confused. So imagine how hard it is for employees to figure it out. Barbara Baksa, executive director of the National Association of Stock Plan Professionals (NASPP), for instance, points out that TurboTax currently is wrong about how to calculate the ordinary income component of ESPP shares when the shares are bought at a discount and the plan has a look-back feature. In a qualifying disposition, the employee pays ordinary income taxes on the lesser of what the discount would have been if the purchase price had been set on the first day of the offering period (even if that's not when the actual purchase price was calculated) or the employee's actual gain upon sale of the shares. See her blog for details. And in this article at mystockoptions.com (paid subscription required), Bruce Brumberg and Lynette Khalfani explain that employees should not report income in the year shares are purchased unless they also sell the shares that year.