Cliff & Vest Equity compensation, worked out

ESPP Disposition Calculator

Sell your employee stock purchase plan shares too early and the whole discount is ordinary income — even if you sold at a loss. This works out what each path costs, and whether holding on is actually worth it.

Tax year 2026 Figures final Last verified 2026-07-27 How we verify

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ESPP Disposition Calculator

Stock compensation · 2026 · US federal

Your numbers

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Section 423 caps this at 15%. Most plans use the maximum.

A lookback applies the discount to whichever price was lower, at the start of the offering period or on the purchase date. It is the single most valuable feature a plan can have.

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The grant-date price. It sets your purchase price when the stock rose, and it sets your ordinary income in a qualifying disposition either way.

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The length of the offering period before this purchase. Commonly 6, 12 or 24 months. Section 423 caps it at 27 when the plan has a lookback.

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Advanced inputs
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Gains elsewhere in your return that a loss on these shares could offset before the $3,000 ordinary-income limit applies.

Runs entirely in your browser. Nothing you type is sent anywhere, stored, or logged.

Result

This sale would be a Disqualifying disposition
Tax this sale costs you $6,310
Net proceeds after tax $33,690 What actually reaches your bank account once the tax on this sale is paid.
Saved by waiting to qualify $1,830 Negative means waiting would cost you more — which happens more often than anyone admits. See the questions below.
Months until it qualifies 16
Ordinary income (goes on your W-2) $13,000
Capital gain or loss $10,000
Gain is long-term No — taxed as ordinary
Price you paid per share $17.00
Cost basis per share $30.00
Effective rate on your gain 27.4%
Capital loss carried to future years $0

Estimates for the tax year shown, on the assumptions set out under what this does not model. Educational information, not tax advice.

Line by line
Purchase price per share $17.00
Total you paid $17,000
Gross proceeds $40,000
Ordinary income recognised $13,000
Cost basis per share (purchase price + ordinary income) $30.00
Capital gain or loss $10,000
Total ordinary income tax for the year $42,664
Long-term capital gains tax $0
Net investment income tax $380
Tax attributable to this sale $6,310
Ordinary income if you waited to qualify $3,000
Tax if you waited to qualify $4,480

An employee stock purchase plan looks like the simplest benefit your employer offers. You set aside part of each paycheck, twice a year it buys company stock at a discount, and the discount is free money. The tax treatment is where that simplicity ends.

Shares bought under a §423 plan are taxed one of two entirely different ways depending on when you sell them. Sell early and the whole discount becomes ordinary income taxed at your top rate. Hold long enough and most of it becomes a long-term capital gain instead. The dividing line is two years from the start of the offering period and one year from the purchase — both, not either.

What almost nobody realises is that the early-sale tax is owed on the discount you received at purchase, not on what you actually made. Sell below what you paid and you can still owe thousands in ordinary income tax on a trade that lost money. The calculator above prices both paths and tells you which is genuinely cheaper — including the cases where holding on is the wrong answer.

Background reading: The tax forms your equity generates.

How this is calculated

Two formulas, and which one applies is decided entirely by the calendar. The second is where the surprises live.

  1. What you paid discount applied to the lower of the grant-date price and the purchase-date price That is the lookback. Without one the discount comes off the purchase price alone, which on a rising stock is worth dramatically less.
  2. Which disposition this is qualifying if at least 2 years from the offering start AND at least 1 year from the purchase Both conditions. Employees routinely clear the one-year mark, assume they are safe, and miss the two-year one — the offering period counts from its first day, not from the purchase.
  3. Ordinary income — sold early purchase-date price − price paid The full spread at purchase, owed regardless of what you sold for. It appears on your W-2, but usually with no tax withheld against it.
  4. Ordinary income — held long enough the lesser of (sale price − price paid) and (discount × grant-date price) Note which price the second term uses. Measuring the discount against the grant-date value, not the price you paid, is the provision that produces every counter-intuitive result on this page.
  5. Capital gain sale price − (price paid + ordinary income) The ordinary income you just recognised is added to your basis, so you are not taxed on it twice. Long-term if held over a year from purchase.

A worked example

Maya’s plan runs six-month offering periods with a 15% discount and a lookback. The stock opened the period at $20 and closed it at $30, so her purchase price is 15% off the lower figure — $17 a share. She buys 1,000 shares for $17,000, and with the stock at $30 they are worth $30,000 the moment they land.

Two months later the stock reaches $40 and she sells. Her broker shows a $23,000 profit and she assumes it is a capital gain. It is not. Because she sold inside both holding periods, the $13 per share she was effectively discounted at purchase is compensation, and the remaining $10 a share is a short-term gain taxed at exactly the same rate.

On a $200,000 salary that is a five-figure tax event, and her employer withheld nothing against it. Had she waited until the two-year mark, the ordinary income would have fallen to $3 a share and the other $20 would have been a long-term capital gain.

Figures from verified case sell-at-purchase-disqualifying
Qualifyingfalse
Months Until Qualifying$16.00
Purchase Price$17.00
Ordinary Income$13,000.00
Capital Gain$10,000.00
Cost Basis Per Share$30.00
Long Term Gainfalse
Tax Ordinary$42,664.00
Tax Niit$380.00
Tax From Sale$6,310.00
Net Proceeds$33,690.00
Saving From Waiting$1,830.00

Every figure here is generated by the same code that runs the calculator and asserted on each build against a case hand-computed from §421(b) and the 2026 bracket tables.

What this does not model

Every calculator has a boundary. Here is where this one stops — read it before relying on the number.

Questions

Can waiting for a qualifying disposition ever cost me more?

Yes, and this is the single most useful thing on this page. It happens when the share price fell during the offering period, because the qualifying formula measures your ordinary income against the price at the *start* of the offering — which was high — rather than against the price you actually paid.

Try it: a stock at $100 when the offering opened and $20 when it closed gives you a $17 purchase price. Sell at $25 today and your ordinary income is $3 a share. Wait to qualify and it becomes $8 a share, because 15% of the $100 grant price is $15 and your actual gain of $8 is the lesser figure. If you have already passed the one-year mark, selling now gives you long-term treatment on the difference and costs less in total. The calculator will show a negative saving when this applies.

I sold at a loss. Why do I still owe tax?

Because in a disqualifying disposition the ordinary income is fixed by the spread on the purchase date, not by what happened afterwards. §421(b) recognises the benefit you received when you bought the shares at a discount, and a later fall in the price does not undo it.

You do get a capital loss, measured from a basis that includes the ordinary income — but capital losses offset only $3,000 of ordinary income a year under §1211(b), with the rest carried forward. Enter a sale price below your purchase price in the calculator and you will see tax owed on a trade that lost money. Selling immediately at purchase, before the price can move, is the standard way to avoid ever being in this position.

Does my employer withhold tax on this?

Generally not, and this is where people get caught. The ordinary income from a disqualifying disposition is reported on your W-2, but employers are not required to withhold federal income tax against it, and most do not. You receive a W-2 showing income that nothing was paid against.

One consolation: ESPP income is exempt from Social Security and Medicare tax under §3121(a)(22), unlike an ordinary bonus. But you should expect to fund the income tax yourself, and a large sale can push you into underpayment penalties if you do not make an estimated payment.

What is a lookback and how much is it actually worth?

A lookback lets the plan apply your discount to whichever was lower: the price when the offering period opened or the price on the purchase date. It is the most valuable feature a plan can have, and it is optional — check your plan document rather than assuming.

Switch the lookback setting in the calculator to see it on your own numbers. With a stock rising from $20 to $30 and a 15% discount, a lookback plan charges you $17 a share while a plan without one charges $25.50 — the discount is nominally the same 15% but the effective one is 43%. On a rising stock the lookback is worth far more than the headline discount.

My broker’s 1099-B shows a much bigger gain than this. Which is right?

This page is, and the discrepancy is one of the most common sources of ESPP overpayment. Since 2014 brokers have been prohibited from adjusting the reported basis on shares acquired through an employee plan, so the 1099-B typically shows only what you paid — omitting the ordinary income that was added to your basis.

If you enter that figure straight onto your return you pay tax twice on the discount: once as W-2 compensation and again as a larger capital gain. The correction goes on Form 8949 with an adjustment code, using your true basis — the cost basis per share in the results above. Your Form 3922 has the grant-date and purchase-date prices needed to work it out.

When exactly does the two-year clock start?

On the first day of the offering period — the grant date — not on the purchase date and not on the day you enrolled a contribution. For a plan with six-month offering periods that means shares bought at the end of an offering are already six months into their two-year clock, and need only eighteen further months.

For a plan with a 24-month offering period containing four purchase dates, all four purchases share a single grant date, so the later ones qualify sooner after purchase. Both figures are on the Form 3922 your employer issues for each purchase; work from those dates rather than from memory.

Should I just sell every purchase immediately?

For many people, yes, and it is a defensible default. Selling at purchase locks in the discount, produces a capital gain of almost nothing because the price has barely moved, removes the risk of owing tax on a position that later falls, and avoids adding to a concentration in the company that already pays your salary.

The cost is real but bounded: you forgo the chance to convert the discount into long-term capital gain treatment. Run both scenarios above with your actual numbers. If the saving from waiting is small relative to how much of your net worth would sit in one employer’s stock for two years, the concentration risk is usually the bigger number.

What happens if I leave the company?

Shares you have already purchased are yours and their clocks keep running — leaving does not convert a future qualifying disposition into a disqualifying one. Contributions not yet used to buy shares are normally refunded to you in cash, and any current offering period ends without a purchase.

What does change is practical: your former employer still has to report a disqualifying disposition on a W-2, and getting a corrected form from a company you have left is harder than getting one from a company you work at. Keep every Form 3922 you were issued.

Is anything I enter here sent anywhere?

No. This calculator is a static JavaScript file that runs inside your own browser and makes no network request. Your salary, your share counts and your prices never leave your device, there is no account to create, and nothing is stored between visits.

Sources

Every rate and threshold used above traces to one of these. We cite the statute, the regulation, or the IRS directly — never another commentary site.

This page is educational information, not tax, legal or investment advice, and using it creates no professional relationship. Equity compensation interacts with the rest of your return in ways a single calculator cannot see. Before acting on a figure of any size, take it to a qualified tax adviser.