A § 423 employee stock purchase plan is a type of statutory stock option plan. If you participated in an employee stock purchase plan:

• When you receive the grant or exercise your option to purchase stock, you don't include any amounts in your gross income.
• When you sell the stock, you may have to report compensation on line 1a of Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors and capital gain or loss on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets. If your employer or former employer doesn’t provide you with a Form W-2 or if the Form W-2 doesn’t include the amount in box 1, report this amount on Schedule 1 (Form 1040) PDF, line 8k.

The amount of compensation and capital gain or loss depends on whether you satisfy the holding period requirement.

• You satisfy the holding period requirement if you don't sell the stock until the end of the later of:
  • The 1-year period after the stock was transferred to you, or
  • The 2-year period after the option was granted

You should receive a Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c) from your employer when the employer has recorded the first transfer of legal title of stock you acquired pursuant to your exercise of the option. This form will assist you with the tracking of your holding period and your cost basis for the stock purchased through your qualifying plan.