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ESPP and Special Dividend tax confusion

  • Last Updated:
  • Aug 17th, 2020 9:58 am
[OP]
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Jun 8, 2012
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Toronto

ESPP and Special Dividend tax confusion

TL;DR For an ESSP is a special dividend considered a taxable benefit or is it capital gain?

I work for a US company and contribute to their Employee Stock Purchase Program. During the last purchase period there was a special dividend that was paid out to share holders, so the board decided to also apply the special divided to the price of the stock at the beginning of the purchase period.

If I were to sell the stock on the day I get it, I know the 15% discount/benefit is taxed at my marginal tax rate and the gain is taxed as capital gains tax, hows does this work in this case with the Special Dividend. Is the special dividend considered a taxable benefit or is it capital gain?

For example say the stock was $30 at the beginning of the purchase period and its now trading at $40 at the end of the period. In my case they choose the lesser of the two.

$30 (Market price at the beginning of the offering period)
- $10 (Special dividend)
= $20
- $3.00 (15% discount)
= $17.00 Purchase Price

Would I pay:
Capital Gains on: $10
Marginal tax on : $13

or:
Capital gains on: $20
Marginal tax on: $3

Thanks - I hope this all makes sense, and my terminology isn't to far off, I'm not completely savvy when it comes to all of this, but I'm trying to understand it as best I can.
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