Taxing ESPP's is an IRS racket.

Taxing ESPP's is an IRS racket.
April 29, 2002 5:01 AM

There's an IRS proposal to tax employee stock purchase plans. Such a plan exists at my company, where I can contribute part of my salary to the plan which is used to purchase company stock at a discount rate (which is a small percentage, and is often nullified in a day by recent moves in the market). According to C|Net...

Under the new regulation, the IRS would tax that "discount" spread of 10 percent to 15 percent. Unless workers were to sell the stock the same day they exercised it, they would owe taxes on earnings they had yet to receive. And employers would be required to pay the IRS a matching amount.

I can sort of understand taxing the employee on the discounted rate, but only if it has provided a profit, and only when a trade has been executed between the employee and a third party. This proposed regulation clearly would disincentivize the employee (and in certain cases, would devalue the stock). The part about the employer having to pay a matching amount sounds like the terms of a loan shark.

If you are reading this blog, you are probably a tech worker like myself and are likely to be impacted by this IRS rule (in one way or another). So speak up and contact your congressional representative.