ESPP Calculator

A 15% discount with a lookback is one of the highest reliable returns available to an employee. Selling at purchase turns it into roughly 18% on the money — before annualising, and the annualised figure is far higher because contributions are only invested for part of the period.

It applies the discount to the lower of the price at the start of the offering period and the price at purchase. If the stock rose from $50 to $60, you pay 15% off $50 — $42.50 — for shares worth $60. It converts a discount into a much larger gain, and protects you when the price falls.

Selling at purchase captures the discount with the least risk and avoids concentrating your savings in the company that already pays you. Holding for a qualifying disposition improves the tax treatment but adds a year of single-stock exposure. Most planners favour selling; the tax saving rarely justifies the concentration.

Sell within two years of the offering date or one year of purchase and it is a disqualifying disposition: the discount is ordinary income, the rest capital gain. Hold past both and it qualifies, with the lesser of the discount or the actual gain taxed as ordinary income and the remainder long-term.

The IRS caps purchases at $25,000 of stock value per calendar year, measured at the offering-date price. Plans typically also cap contributions at 15% of pay. Between the two, most participants hit the plan's percentage limit before the dollar one.

Your salary, your equity and your ESPP all depend on one company. If it struggles, they can fail together — which is exactly what happened to employees who held concentrated positions at Enron and Lehman. The discount is nearly free; the concentration is not.