HP SOP (SHARE OWNERSHIP PLAN) TAX REPORTING INFO [OBSOLETE! Or at least very old, and superceded. Instead search for and check out the HP Alumni Association stock history and spreadsheet information.] Managed by Computershare (now Mellon?), starting Nov 2000, replacing the ESPP = Employee Stock Purchase Plan. (See also some appended info about the latter.) Info collected by Alan Silverstein, ajs@frii.com, https://silgro.com Last updated: January 22, 2020 Caveat emptor! SUMMARY: - Shares are bought every six months on the last trading day of the HP fiscal quarter (ends of Apr and Oct). - Each lot of shares has an associated "Entry Date" and Entry Date FMV (Fair Market Value = HPQ closing price on that date), plus a Purchase Date FMV, although this information is NOT available on Computershare quarterly statements (for no fathomable reason). - Due to earlier auto-resets (because the HPQ price dropped) and later program changes (starting Nov 2004), the Entry Date appears to be six months prior to the Purchase Date in all cases EXCEPT for shares bought: + Oct 2003 + Apr 2004 + Oct 2004 For these, the Entry Date remained Nov 1, 2002 (entry FMV = $16.31, same as Apr 2003). - Until the Apr 2006 purchase, the purchase price was 85% of the lower of the Entry Date or Purchase Date FMV; thereafter, 85% of only the Purchase Date FMV (no more "lookback"). - US federal tax reporting is summarized below, and non-trivial! Note that state tax reporting is probably unaffected, since capital gains are not treated differently in most/all states. - Shares sold before the end of the holding period are "disqualified" and handled one way. Otherwise they are "qualified", and handled another way that is actually more work, requires more data, and can yield HIGHER taxes due if the stock price went down between the Entry Date and the Purchase Date. See details later in this file. - See also a very nice (but generic) explanation here: http://turbotax.intuit.com/tax-tools/employee_stock_purchase_plans_turbotax/article - Fractional shares bought through the dividend reinvestment program (DRIP) are NOT very special. Aside from them being fractional shares you can only sell within the program (by the agent, Computershare/Mellon), they are just like any other stock shares or other capital assets. They are short or long term according to holding period, you add costs/commissions to the cost basis or deduct from gross sales price according to how the agent reports the sale to you, etc. DATE/PRICE HISTORY: Here is full FMV history for certain dates, from an HP internal website and later from other sources (such as closings in http://finance.yahoo.com/q/hp?s=HPQ), annotated by me. It's up to you, dear reader, to figure out for each lot of shares that you bought, what was the entry date, the purchase date, which FMV to use, and how to do the calculations. Nov 1, 2000 $44.44 (entry, original) Apr 30, 2001 28.43 (purchase) May 1, 2001 28.45 (entry, auto-reset) Oct 31, 2001 16.83 (purchase) Nov 1, 2001 17.30 (entry, auto-reset) Apr 30, 2002 17.10 (purchase) May 1, 2002 16.86 (entry, auto-reset) June 3, 2002 18.85 (CPQ merger?) Oct 31, 2002 15.80 (purchase) Nov 1, 2002 16.31 (entry, auto-reset) Apr 30, 2003 16.30 (purchase) May 1, 2003 16.50 (entry) Oct 31, 2003 22.31 (purchase) Nov 3, 2003 22.70 (entry) Apr 30, 2004 19.70 (purchase) May 3, 2004 19.65 (entry) Oct 29, 2004 18.66 (purchase) Nov 1, 2004 18.76 (new entry date AND new/simpler entry date rule) Apr 29, 2005 20.47 (purchase) May 2, 2005 20.97 (entry) Oct 31, 2005 28.04 (purchase) Nov 1, 2005 28.28 (entry AND new rules, no lookback) Apr 28, 2006 32.47 (purchase) May 1, 2006 32.64 (entry) ------ remainder added manually from other sources ------ Oct 31, 2006 38.74 (purchase) Nov 1, 2006 38.55 (entry) Apr 30, 2007 42.14 (purchase) May 1, 2007 42.92 (entry) Oct 31, 2007 51.68 (purchase) Nov 1, 2007 51.50 (entry) (had $51.48 but now Yahoo says 51.50) ------ all data above checked against an HP table found by my wife ----- Apr 30, 2008 46.35 (purchase) May 1, 2008 48.03 (entry) Oct 31, 2008 38.28 (purchase) Nov 3, 2008 38.61 (entry) Apr 30, 2009 35.98 (purchase) May 1, 2009 36.52 (entry) Oct 30, 2009 47.46 (purchase, note: HP 15% discount gone now) Nov 2, 2009 48.16 (entry) Note: The later Entry Date FMVs are irrelevant for Purchase Price setting (no lookbacks after Apr 2006), but apparently still needed for federal tax calculations for qualified dispositions. Note: I'm going to cease updating this file because the HP SOP has become worthless (no more 15% discount) and my wife (still HP employee) is dropping out of the program. If for some reason you continued to engage in the SOP after the Oct 30, 2009 purchase cycle, and you need the entry or purchase prices for later dates, you can find them at the Yahoo site (see hyperlink above). TAX HANDLING: July 2006, from HP internal website (edited here): WHAT IS THE HOLDING PERIOD? Since the Plan is qualified in the United States under Section 423 of the Code, HP is required to track the sale or other disposition of HP Shares purchased under the Plan during the holding period. - For Offering Periods prior to November 1, 2004, it is the later of two years from your Entry Date, or one year from the Purchase Date. - For Offering Periods beginning on or after November 1, 2004, the holding period is two years from your Entry Date. (AJS: As of Apr 2006, the Entry Date is always six months before the Purchase Date, and determines the two-year holding period; see below. And, after Nov 2005, there is no longer a lookback discount; the discount is simply 15% of the FMV on the Purchase Date.) What are the U.S. federal income tax implications of participating in the Plan? ... B. TAXATION ON THE SALE OF THE HP SHARES When you sell (or otherwise dispose of) such HP Shares, you will pay ordinary income tax and capital gains tax, depending on how long you have held the HP Shares. You may receive more favorable federal income tax treatment if you hold your HP Shares for the applicable holding period. If you sell the HP Shares before the end of the holding period, your sale is considered a disqualifying disposition, and you calculate your federal income taxes according to the following rules: You pay income taxes at ordinary income rates on the amount by which the FMV of the HP Shares on the Purchase Date exceeds the Purchase Price of the HP Shares. This discount must be reported to you and the IRS and will be included on your Form W-2. (AJS: This actually makes life SIMPLER, because HP computes and handles your income and withholding, and you just treat the capital gains/losses as being based on the Purchase Date FMV; the dates are on your Computershare statements and the FMV history can be found on the Web.) You pay income taxes at capital gain rates (either short-term or long-term) on the amount by which the price you sold the HP Shares for exceeds the FMV of the HP Shares on the Purchase Date. The period for determining whether the gain is short-term or long-term begins on the Purchase Date. If you sell the HP Shares at a loss, the loss will be either short-term or long-term. If you hold your HP Shares for the holding period, you calculate your federal income taxes according to the following rules: You pay income taxes at ordinary income rates on your profit up to 15% of the FMV of the HP Shares on the Entry Date. (AJS: It appears that if the FMV was higher on the Entry Date than on the Purchase Date, you actually come out BEHIND by waiting and selling the shares as qualifying!) You pay income taxes at long-term capital gain rates on the rest of your profit. If you sell the HP Shares for less than you paid for it, the difference is a long-term capital loss. (AJS: Note that in this case, HP no longer does any withholding or issuing of a W2. It's up to you and your CPA to get this right.) ---------------- FROM PLAN PROSPECTUS dated May 7, 2006: L. Entry Date Your Entry Date is the first trading day of the Offering Period. Your Entry Date impacts the taxation for U.S. taxpayers, determines the holding period for requesting stock certificates, and affects the calculation of the U.S. $25,000 annual limit on purchasing HP Shares. Prior to November 1, 2005, the Entry Date also had an impact on the calculation of the Purchase Price. ... Y. Offering Period As of November 1, 2004, a specified 6-month period beginning on May 1 or November 1, respectively, during which participants may accumulate contributions for purchases of HP Shares under the Plan. Prior to November 1, 2004, Offering Periods were a specified 24-month period. BACKGROUND / DETAILS: Example of HP statement for one offering period, from an internal website; note that they don't mention the Entry Date or its FMV: Open Enrollment for the Offering Period from May 1, 2006 to October 31, 2006 is now CLOSED. Current Offering Period: May 1, 2006 to October 31, 2006 Purchase Price: The Purchase Price for the April 28, 2006 Purchase Date was $27.5995. The Purchase Price was 85% of $32.47, the Fair Market Value on the purchase date. ----------------------- From: Robert Klute Date: 17 Dec 2001 10:52:26 -0800 (NOTE THE DATE) Subject: Re: Is SOP tax info wrong? Newsgroups: hp.forum,hp.misc There are two clocks running. The first is the 2-year offering period. That clock runs out on 11/1/2002. The second clock is the 1 year holding period clock. That expires 1 year after the lot is purchased. There are 3 values you need to remember The FMV of the stock on the entry date The FMV of the stock on the purchase date The price you paid (which is 85% of the lesser of the previous two) Remember also, while the two clocks are running you must treat the initial gain as ordinary income, whether you actually make that much profit or not. Before the end of the two year clock that is based on your entry date and the one year purchase date clock, the ordinary income portion is based on difference between what you paid for it (which may be a 15% discount on either the entry date price or the purchase date price) and the FMV on the purchase date. Once you do that you calculate you short/long gain/loss based on the FMV on the purchase date. After both clocks run out, if your selling price is greater than your purchase price, you treat any gain up to 15% of the FMV on the entry date as ordinary income and any gain beyond that as Long Term capital gains. If your selling price is less than your purchase price, you treat the whole loss as Long Term capital loss, and there is no ordinary income. Example 1: FMV on Purchase Date > FMV on Entry Date The 1st line is Entry Date, 2nd is Purchase Date, 3rd is Purchase Price. FMV Entry Date = $44.44 85% of that = $37.77 15% of that = $6.67 FMV Purchase = $50.00 85% of that = $42.50 15% of that = $7.50 Price paid = $37.77 (85% of FMV Entry Date) Tax liability - if sold immed. <1 yr. 1 yr. 18 mo. + Ordinary Income $12.23 $12.23 $12.23 First $6.67 of gain Sh Term Gain/Loss - SP - $50.00 - - Lg Term Gain/Loss - - SP - $50.00 Any loss if sold < $37.77 or Any gain over $44.44 There is an aberration that occurs if the purchase date price is less than the entry date price. Example 2: FMV on Purchase Date < FMV on Entry Date The 1st line is Entry Date, 2nd is Purchase Date, 3rd is Purchase Price. FMV Entry Date = $50.00 85% of that = $42.50 15% of that = $7.50 FMV Purchase = $44.44 85% of that = $37.77 15% of that = $6.67 Price paid = $37.77 (85% of FMV Purchase Date) Tax liability - if sold immed. <1 yr. 1 yr. 18 mo. + Ordinary Income $6.67 $6.67 $6.67 First $7.50 of gain Sh Term Gain/Loss - SP - $44.44 - - Lg Term Gain/Loss - - SP - $44.44 Any loss if sold < $37.77 or Any gain over $45.27 ---------------- From http://persweb.corp.hp.com/comp/employee/program/tr/sop/ustaxinfo.htm 011219, reformatted, "highlighted" by me U.S. Tax Information The following information is intended to provide a summary of the general U.S. federal income tax effects of purchasing HP shares through the Plan. This information APPLIES ONLY TO U.S. TAXPAYERS. Different tax consequences may result from different circumstances. For example, this information does not address tax consequences for non-U.S. taxpayers. This information is based on U.S. income tax law under the Internal Revenue Code of 1986, as amended (the "Code"), in effect as of the date of this prospectus. This information DOES NOT ADDRESS CITY, STATE, OR COUNTY TAX LAWS that may apply. Income tax laws are complex and can change frequently. Your particular tax treatment will depend on your individual circumstances. Therefore, you are advised to seek appropriate professional advice as to how the tax rules may apply to your specific situation. When you enroll in the Plan, all contributions are DEDUCTED FROM YOUR PAYCHECK ON AN AFTER-TAX BASIS. You do not pay income tax when HP shares are purchased for you under the Plan, even though the Purchase Price will be the lower of 85% of the Fair Market Value (FMV) of the shares on your Entry Date or the Purchase Date. When you later sell (or otherwise dispose of) such HP shares, you will PAY ORDINARY INCOME TAX AND CAPITAL GAINS TAX, depending on how long you have held the shares after the Purchase Date. You may receive more favorable federal income tax treatment if you hold your HP shares for more than the government-regulated holding period (that is, TWO YEARS AFTER THE APPLICABLE ENTRY DATE AND ONE YEAR AFTER THE PURCHASE DATE). If you hold such HP shares that long, your federal income taxes are figured this way: * You pay income taxes at ordinary income rates on your profit up to 15% of the FMV of the shares on the Entry Date. * You pay income taxes at long-term capital gain rates on the rest of your profit. If you sell the shares for less than you paid for it, the difference is a long-term capital loss. If you SELL THE HP SHARES BEFORE THE END of the described above, your federal income taxes are figured this way: * You pay income taxes at ordinary income rates on the amount by which the FMV of the shares on the Purchase Date exceeds the Purchase Price of the shares. This discount must be reported both to you and the IRS. * You pay income taxes at capital gain rates (either short-term or long-term) on the amount by which the price you sold the shares for exceeds the FMV of the shares on the Purchase Date. The government-regulated holding period for determining whether the gain is short-term or long-term begins on the Purchase Date. If you sell the HP shares at a loss, the loss will be either short-term or long-term. IF YOU DIE while you own HP shares purchased under the Plan, the government-regulated holding period is considered satisfied. Income tax is payable only on the portion of the gain (if any) as of the date of your death up to 15% of the FMV of the shares on the applicable Entry Date. Any such amount is taxed as ordinary income. The remainder of the gain at your date of death is not subject to income tax. YOU MUST REPORT ANY DIVIDENDS PAID ON YOUR HP SHARES AS ORDINARY INCOME. Dividends are subject to tax even though they are automatically reinvested to buy more HP shares. You will receive a tax notice (IRS Form 1099DIV) shortly after the end of each year. This notice reports the dividends. HP receives a deduction for federal income tax purposes for the ordinary income you must recognize when you dispose of HP shares purchased through the Plan before the end of the government-regulated holding period. Under current law, HP will report the ordinary income arising at the time of disposition on your W-2 at the end of the year, but will not withhold income tax or FICA tax. HP may, in the future, withhold income tax and/or FICA tax at the time of a disqualified disposition to the extent HP reinterprets its obligations in accordance with any change in law. HP does not receive a deduction if you dispose of the HP shares after the government-regulated holding period. ... ---------------- REGARDING THE ESPP: From: ... Date: 14 Apr 2010 15:13:57 -0000 Subject: [HPAA Benefits] Tax on ESPP 15% discount - From HP website To: hp_alumni_benefits@yahoogroups.com Before I left I printed out the taxation information from the HP website (so I only have my print-out!). What it says is: A) Taxation on purchase -- you do not pay tax when you purchase shares even though the purchase price is 85% of FMV. B) Taxation on sale of HP Shares -- When you sell you will pay income tax and capital gains depending on how long you held the shares If you sell after the holding period: * Pay taxes at ordinary income tax rates on profit up to 15% of FMV of the shares on entry date. * Pay income taxes at capital gain rates on rest of your profit. If you sell before the end of the holding period: * Income tax rates on the amount by which the FMV of the HP shares on purchase date exceeds the purchase price -- this discount must be reported to you and the IRS and will be included on your W2. * Income tax at capital gains rates (either short or long term) on the amount by which the price you sold the shares for exceeds the FMV of the shares on the purchase date. The period for determining whether short or long term capital gains begins on the purchase date. Added February 2016: 1959 through 2000: HPAA's HP Employee Stock Purchase Spreadsheet. Employee Stock Purchase Plan FMV's and Prices = 6/59 through 1/01. Includes the exact amounts that employees paid taxes on -- for employee stock purchase and service awards. Includes stock splits and the Agilent and Verigy spinoffs. Developed by a team of HPAA members. See: http://www.hpalumni.org/stock