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Is the tax rate different if I sell ESPP stock less than 1 year?

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Level 13

Is the tax rate different if I sell ESPP stock less than 1 year?

If you sell ESPP stock in a disqualifying sale, i.e., selling the stock less than one year after its purchase, then you will report as "compensation income", (it might already be reported on your W-2), the difference between what you paid for the stock and and the stock's fair market value at the purchase date.  Of course this compensation income is taxed at your "regular" tax rate, just like any other compensation.  You get to add this compensation to your out of pocket cost when reporting the sale and any resulting gain or loss is taxed at short term capital gains rates, which is also taxed at your "regular" tax rate.

If you sell ESPP stock in a qualifying sale:

  • It is more than a year after the purchase of the shares, and
  • It is more than two years after the grant date.

you still might have to report some amount of compensation income, using a more favorable method, and any gain or loss would be taxed at long term capital gains rates which is 0% or 15% for most people.

Tom Young

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