My company offers an ESPP program. For completeness's sake, the basic details are as follows:
- There is a 15% discount on purchase.
- There are always two simultaneous offerings.
- Employees may participate in only one of the offerings, not both simultaneously.
- One offering begins in May and the other begins in November.
- Each offering has two purchase dates: in May and November.
- Each offering has a look-back provision to the beginning date of the offering.
- Employees may contribute up to 25% of their salary to the ESPP program through payroll deductions, subject to the IRS limit of $25,000 worth of stock purchased per year.
My understanding is that the IRS participation limit has some kind of carry-over provision when an offering period crosses over year boundaries, as my company's offerings do. I'm having a hard time finding relevant information online. Could someone please explain how this carry-over provision works?
The way I understand it, if the amount of stock purchased in year X is less than the $25,000 limit, the purchase of stock in year X+1 as part of an offering which began in year X counts first toward the year X limit and then to the year X+1 limit. Is this understanding correct? If so, could multiple purchases in year X+1 as part of the same offering which began in year X count toward year X's limit (from my example, the offering beginning in November of year X which purchases shares in May and November of X+1)? Examples of how the rules apply would be very helpful.
I found the following which is very difficult to understand the legalese:
(vi) No employee may be granted an option that permits the employee's rights to purchase stock under all employee stock purchase plans of the employer corporation and its related corporations to accrue at a rate that exceeds $25,000 of fair market value of the stock (determined at the time the option is granted) for each calendar year in which the option is outstanding at any time (see paragraph (i) of this section); and