Reply To: Chapter 27 – ESPP Tax example question

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#5011
Kaye Thomas
Moderator

This is a continuation of an example in which the stock value at the time of the grant is $10, and the plan allows a 15% discount on the purchase price. The law provides a peculiar rule here. It says that if you satisfy the holding period, your compensation income is determined based on the amount of discount you would have received as of the grant date, which in this case is $1.50. You’re required to report that much compensation income even though the actual discount received is only $1.20 because we look back to the discount you would have received as of the grant date.