ESPP Taxes Explained: How Uber Employees Could Be Overpaying Thousands

Aug 7, 2025

Are You Overpaying Taxes on Your ESPP Sales? Here's How to Find Out (With Real Example)

If you work in tech and participate in your company’s Employee Stock Purchase Plan (ESPP), there’s a good chance you could be overpaying taxes — especially if you sold your shares shortly after purchase and didn’t adjust your cost basis.

This post will walk you through:

What ESPPs are and how they work
The difference between qualified and disqualified ESPP sales
How double taxation happens (and how to fix it)
A real-world example showing how much money could be left on the table

Let’s dive in.

What Is an ESPP?

An Employee Stock Purchase Plan (ESPP) lets you buy your company’s stock at a discount using after-tax payroll deductions. Most U.S. tech companies offer what’s known as a qualified Section 423 ESPP, which gives you:

Up to a 15% discount on the stock
A lookback provision, allowing you to buy stock at the lower price between the beginning and end of the purchase period (usually every 6 months)

You can contribute up to 15% of your salary (with a max of $25,000 in purchases per year, based on the stock’s price at the beginning of the offering period).

Qualified vs. Disqualified ESPP Sales

How your ESPP is taxed depends on when you sell the shares:

Qualified Sale:

To get favorable tax treatment, you must hold the shares for:

2 years from the offering date, and
1 year from the purchase date

If you meet both:

You pay ordinary income tax on the lesser of:
- The discount based on the offering price, or
- The actual gain
Any additional gain is taxed as long-term capital gains

Disqualified Sale:

If you sell before meeting the holding periods:

You pay ordinary income tax on the entire discount (based on purchase date FMV - purchase price)
Any remaining gain is taxed as short-term or long-term capital gains, depending on how long you held the shares

This is where many people run into tax trouble.

How Double Taxation Happens

When you sell ESPP shares in a disqualified sale, your employer will typically include the discount as ordinary income on your W-2.

However, most brokerages report your purchase price (after the discount) as your cost basis on the 1099-B. They don’t adjust it to reflect the amount already taxed.

So when you file your taxes, the IRS sees a gain (even though you already paid tax on that discount) and taxes you again — this time as capital gains.

Unless you manually correct the cost basis when you file, you’re getting double taxed.

Real Example: How Much Can You Overpay?

Let’s walk through a realistic example based on someone working at Uber Technologies (UBER):

The Setup:

Employer: Uber
Salary: $200,000
Max ESPP contribution: $25,000/year
Purchase frequency: Semi-annual (every 6 months)
Discount: 15%
Lookback applies
Uber stock price in Jan 2023: $26
Uber stock price in June 2023: $45
Uber stock price in Dec 2023: $62

First Purchase (June 2023):

Contribution: $12,500
Purchase price: $26 - 15% = $22.10
Shares bought: $12,500 / $22.10 = 566.06 shares
FMV at purchase date: $45
Discount taxed as ordinary income: ($45 - $22.10) × 566.06 = $12,959.70
But brokerage reports cost basis = $22.10/share = $12,500 total
IRS sees gain = $22.90/share = $12,959.70 again
Overpaid tax = $12,959.70 × 41.3% (Fed + CA) = $5,355.85

Second Purchase (Dec 2023):

Contribution: $12,500
Purchase price: $45 - 15% = $38.25
Shares bought: $12,500 / $38.25 = 326.80 shares
FMV at purchase: $62
Discount taxed as ordinary income: ($62 - $38.25) × 326.80 = $7,754.90
Brokerage reports cost basis = $38.25/share = $12,500 total
IRS sees gain = $23.75/share = $7,754.90 again
Overpaid tax = $7,754.90 × 41.3% = $3,202.79

Total Overpaid Tax: $5,355.85 + $3,202.79 = $8,558.64

All because the cost basis wasn't corrected.

You Can Still Fix It

If this happened to you in the past 3 years, you can still file an amended return (Form 1040-X) and get that money back.

At Vested Tax, we’ll review your ESPP sales, W-2, and 1099-B to see if you overpaid — and we’ll file the correction for you if needed.

You work hard for your equity. Don’t let the IRS take more than its share.

Need help reviewing your ESPP sales? [Book a free ESPP cost basis below]

Built by a CPA.

Made for Tech Employees