Capital Gains and Selling Employee Stock: What you Need to Know

Have Employee Stock? Be Aware of the Capital Gains Implications

This of capital gains on employee stock has been updated for the 2023 and 2024 tax years. A while back, we covered capital gains tax basics. One thing I didn’t get in to that I thought deserved a post all of its own is capital gains on employee stock units – you know, those things that keep you from running out the door on a hectic Monday (if you’re lucky enough to get them).




Here’s an essential tax tip for anyone who gets employee stock units at work. I’ll try to keep this short and sweet without boring you with all of the details on capital gains and capital losses.

Remember, when you sell a capital asset (e.g. a stock unit that has fully vested or stock in a taxable investment account), you either have a capital gain (if the stock asset has appreciated in value) or a capital loss (if the stock asset has declined in value).

If you have a capital gain, it’s either considered a short-term capital gain or loss (if held for less than a year from the point of vesting) or a long-term capital gain or loss (if held for more than a year).

The difference between the two is SIGNIFICANT, when it comes to your taxes.

You see, short-term capital gains are taxed at your ordinary income tax rates. Long-term capital gains are not. They get preferential tax treatment at levels that are below ordinary tax rates. More specifically, here is the difference between the two:

2023 Short-Term Capital Gains:

Ordinary Income Tax Rates (2023)Single Filer Tax BracketsMarried Filing Jointly Tax Brackets (& Surviving Spouses)Married Filing Separately Tax BracketsHead of Household Tax Brackets
10%$0-$11,000$0-$22,000$0-$11,000$0-$15,700
12%$11,001-$44,725$22,001-$89,450$11,001-$44,725$15,701-$59,850
22%$44,726-$95,375$89,451-$190,750$44,726-$95,375$59,851-$95,350
24%$95,376-$182,100$190,751-$364,200$95,376-$182,100$95,351-$182,100
32%$182,101-$231,250$364,201-$462,500$182,101-$231,250$182,101-$231,250
35%$231,251-$578,125$462,501-$693,750$231,251-$346,875$231,251-$578,100
37%$578,126+$693,751+$346,876+$578,101+

2023 Long-Term Capital Gains:

Long-Term Capital Gains Tax Rates (2023)Single Filer Tax BracketsMarried Filing Jointly Tax Brackets (& Surviving Spouses)Married Filing Separately Tax BracketsHead of Household Tax Brackets
0%$0-$44,625$0-$89,250$0-$44,625$0-$59,750
15%$44,626-$492,300$89,251-$553,850$44,626-$276,900$59,751-$523,050
20%$492,301+$553,851+$276,901+$523,051+

2024 Short-Term Capital Gains:

Ordinary Income Tax Rates (2024)Single Filer Tax BracketsMarried Filing Jointly Tax Brackets (& Surviving Spouses)Married Filing Separately Tax BracketsHead of Household Tax Brackets
10%$0-$11,600$0-$23,200$0-$11,600$0-$16,550
12%$11,601-$47,150$23,201-$94,300$11,601-$47,150$16,551-$63,100
22%$47,151-$100,525$94,301-$201,050$47,151-$100,525$63,101-$100,500
24%$100,526-$191,950$201,051-$383,900$100,526-$191,950$100,501-$191,950
32%$191,951-$243,725$383,901-$487,450$191,951-$243,725$191,951-$243,700
35%$243,726-$609,350$487,451-$731,200$243,726-$365,600$243,701-$609,350
37%$609,351+$731,201+$365,601+$609,351+

2024 Long-Term Capital Gains:

Long-Term Capital Gains Tax Rates (2024)Single Filer Tax BracketsMarried Filing Jointly Tax Brackets (& Surviving Spouses)Married Filing Separately Tax BracketsHead of Household Tax Brackets
0%$0-$47,025$0-$94,050$0-$47,025$0-$63,000
15%$47,026-$518,900$94,051-$583,750$47,026-$291,850$63,001-$551,350
20%$518,901+$583,751+$291,851+$551,351+

So here’s where this comes in to play for those who have stock units.




Even if your stock unit took 4 years to vest, for example, and you sell it for a gain over the vesting price, as soon as it fully vests – it’s still considered a short-term capital gain. You have to hold it for a minimum of 1-year from when it fully vested in order for it to be considered a long-term capital gain (note: the way your employer grants stocks and reports and withholds taxes may vary – so you should definitely consult with a tax professional).

There are some pretty dramatic implications here and I’ve screwed up on this in prior years, so my goal is to prevent you from doing the same.

employee stock capital gains

Stock units are supplemental income. And we should not count on them for ordinary living expenses. But after 4 long years (your vesting schedule may vary) of waiting for them to vest, the first urge is to sell them off within the first year. The cost of doing so is that you will pay your ordinary tax rate on them. Had you held off for a year or more, you would instead pay the long-term capital gains rate and significantly cut your taxes.




There are other considerations, of course. For example, if you have outstanding high APR debts to pay off and you intend to fully use all of your vested shares to pay off that debt, it might be worth selling shares. Or, if you’re overly invested in company shares, you might be at risk to a lack of diversification.

The choice is up to you, but at least now you can’t claim ignorance like I previously did. ;-)

Once you do sell, brokerages are required to send you capital gain and loss reporting via a consolidated 1099-B form at the end of the year, so that you do not have to calculate the capital gains on your own.

From there, your capital gains and losses will be calculated on IRS Form 8949 and reported on the IRS’s 1040, Schedule D form.

That wasn’t so bad, was it?

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