How much will I keep from my ESPP after tax?
Enter your plan’s prices and discount to see how many shares you buy, how a sale is taxed as wages and as a gain, and the price above which holding beats selling on the purchase date.
Filing status
How your plan sets the price
The discount comes off whichever price is lower (a “lookback”).
ESPP AFTER TAXSOLD ON THE PURCHASE DATE
$1,875kept after tax
Your $6,000 of deductions buys 141 shares at $42.50, 15% below the lower of the $50.00 and $60.00 prices, and returns $7.50. On the purchase date they are worth $8,460, $2,468 more than you paid. Sold that day, the $2,468 is wages taxed at your rates: $592 of tax, $1,875 kept.
Shares bought
141
Gain on purchase day
$2,468
Tax on the sale
$592
Break-even to qualify
$58.94
How the sale is taxed
| Part of the sale | Amount | Taxed as | Tax |
|---|---|---|---|
| Discount treated as wages | $2,468 | Ordinary income; no Social Security or Medicare tax | $592 |
| Capital gain | $0 | Short-term gain: ordinary rates | $0 |
| Total profit before tax | $2,468 | $592 | |
| Kept after tax | $1,875 |
This is a disqualifying sale: the wages are the $60.00 purchase-date price less your $42.50 price on each share, however the stock has moved since, $2,468 here. There is no other gain or loss. Total tax $592, $1,875 kept.
After-tax profit by sale price: sell on the purchase date, or hold 19 months to qualify
Hold 19 monthsSell on the purchase date
Selling on the purchase date keeps $1,875. Holding 19 months to qualify keeps more only if you sell above $58.94, which is 1.8% below the $60.00 purchase-date price. Below it, the discount you could have kept is lost to a falling price.
The same shares sold at different times
| Sale | Wages | Capital gain | Tax | You keep |
|---|---|---|---|---|
| On the purchase date | $2,468 | $0 | $592 | $1,875 |
| After 13 months (a disqualifying sale) | $2,468 | $0 | $592 | $1,875 |
| After 19 months (the first qualifying sale) | $1,058 | $1,410 | $465 | $2,002 |
Later sales use your $60.00 sale price. Waiting 19 months makes the sale qualify and can shrink the wages to $1,058, but the stock can move in that time and this table does not say where.
What moves the needle
Each row re-runs the calculation with one change. Click to apply.How it's computed
FORMULA
Option price = (1 − discount) × the reference price, to the cent; the reference is the lower of the start and purchase prices with a lookback, else the purchase-date price
Shares = the smaller of ⌊deductions ÷ option price⌋ and ⌊$25,000 ÷ the price at the start of the offering⌋
Qualifying sale (more than 12 months after the purchase and more than 24 after the offering began): wages = the smaller of the gain and shares × (start price − the option price as if bought at the start); the rest of the gain is long-term
Disqualifying sale: wages = shares × (purchase-date price − option price); capital gain or loss = shares × (sale price − purchase-date price)
Tax = ordinary rates on the wages and any short-term gain, 0/15/20% on a long-term gain stacked on your pay, 3.8% on gains above the income threshold, plus the state rate
- The price is set as in section 423: at least 85% of the lower of the start-of-offering and purchase-date prices, which is why the discount stops at 15%. Your plan may set a smaller discount, a per-period share limit or a lower contribution cap.
- The law lets you buy no more than $25,000 of stock a calendar year, valued at its price when the offering began. This page treats one purchase as the year's only one; if you buy twice a year, the two share the limit.
- Whole shares are bought and the rest of your deductions is refunded. A plan that keeps fractional shares would buy slightly more.
- The holding tests count whole months: “more than 12 months” after the purchase is 13, and “more than 24” after the offering began means the months of the offering plus the months held must exceed 24. The real test counts days, and the holding period starts the day after the purchase.
- Wages from an ESPP sale are income tax only: they are not wages for Social Security or Medicare (IRC section 3121(a)(22)). Your employer may still report them on your W-2 in the year of the sale.
- A net capital loss can offset other gains and up to $3,000 of other income; this page gives it no tax value. Alternative minimum tax, the wash-sale rule and any stock you already hold or sell in the same year are not counted.
WORKED EXAMPLE · SAMPLE NUMBERS
Price: $50.00, the lower of $50.00 and $60.00, less 15% = $42.50. Shares: ⌊$6,000 ÷ $42.50⌋ = 141. Cost $5,992.50. Disqualifying sale: wages = 141 × ($60.00 − $42.50) = $2,468; capital gain = 141 × ($60.00 − $60.00) = $0. Tax $592; kept $1,875.
SOURCES
[1]Publication 525, Taxable and Nontaxable Income (Employee stock purchase plan)Internal Revenue Service[2]26 U.S. Code § 423, Employee stock purchase plansCornell Law School, Legal Information Institute[3]26 U.S. Code § 3121(a)(22), exclusion of employee stock purchase plan stock from wagesCornell Law School, Legal Information Institute[4]Rev. Proc. 2025-32: 2026 inflation-adjusted tax items (brackets, standard deduction, capital gains rates)Internal Revenue Service, 2025[5]Topic no. 559, Net Investment Income TaxInternal Revenue ServiceHSBuilt by Hussain Sehorewala · checked against worked examples · Sep 29, 2026
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Questions about this result
A sale qualifies when you sell more than 1 year after the shares were bought and more than 2 years after the offering period began. Then the wages are only the smaller of your gain and the discount at the start of the offering, and the rest of the gain is long-term. Sell sooner and the wages are the full difference between the purchase-date price and what you paid, whatever the stock did afterward.
Selling on the purchase date locks in the discount and takes no price risk. Holding can lower the tax on part of the gain if the sale qualifies, but you carry the risk that the stock falls; this page shows the price above which holding leaves you better off after tax, so you can judge how much of a fall you are betting against. It is not advice, and many people also weigh how much of their savings is already in their employer’s stock.
No. The wages from an ESPP sale are subject to income tax, but section 3121(a)(22) of the Internal Revenue Code leaves stock bought under an ESPP, and its sale, out of Social Security and Medicare wages.
The basis your broker reports for ESPP shares usually does not include the part of the gain you report as wages, so it looks too low. IRS Publication 525 says that for options granted since 2014 the reported basis will not reflect the income you included, and you adjust it on Form 8949 to avoid paying tax on that amount twice.
Section 423 lets an employee accrue the right to buy no more than $25,000 of stock in a calendar year, with the stock valued at its price when the offering period began. At a start price of $50 that is 500 shares, however much you contribute. Your plan may set a lower limit.
In a disqualifying sale you still owe tax on the purchase-date discount as wages even when you sell for less than you paid, because that wage figure is not limited to your gain. The loss on the sale is a capital loss. In a qualifying sale a loss produces no wages. The chart shows where holding stops paying off.
Your employer sends it by January 31 after you buy shares under an ESPP. It lists the grant and exercise dates, the prices and the number of shares, which are the figures you need to split a later sale into wages and gain.
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