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   The Employee Stock Purchase Plan
Paying Taxes on Plan Benefits
Taxation of stock is a complex topic, subject to frequent change. However, decisions you make concerning the disposition of stock may affect your tax liability. Because neither JPMorgan Chase nor its representatives can provide you with tax advice, you should seek the advice of a personal tax advisor before selling shares of stock. In fact, you may want to consult a personal tax advisor before participating in the plan, to ensure that you make the best enrollment decisions based on your own personal tax situation.
U.S. Federal Income Tax Consequences
If You're Subject to Non-U.S. Taxes
If you're subject to non-U.S. taxes, different tax rules may apply to you. Be sure to consult with a tax advisor for information on how taxes will affect you.
The following information applies to participants subject to U.S. income taxes.
This plan is an employee stock purchase plan under Section 423 of the Internal Revenue Code and is not qualified under Section 401 of the Internal Revenue Code. You will not realize taxable income upon your offer to purchase or upon your purchase of shares under the plan. Generally, dividends received on shares of common stock held by Mellon Investor Services on your behalf under the plan are taxable to you as ordinary income. However, income from "qualified dividends" (i.e., dividends on shares that are held for a specified holding period) is taxed at a lower rate than ordinary income.
If you sell or otherwise dispose of shares of common stock purchased under the plan (including certain dispositions such as gifts), you'll recognize ordinary income in the following amounts:
  • If you dispose of shares within two years from the January 1 of the calendar year in which you purchased the shares, or within one year after the purchase of the shares, you will be taxed on the 5% discount. It will be treated as ordinary income.
  • If you dispose of the shares after the one-year and two-year periods referred to above, the lesser of the following amounts will be taxable to you as ordinary income:
    • The excess, if any, of the market value of the shares at the time of your disposition over the amount paid by you for those shares; and
    • The 5% discount.
If you dispose of shares in a taxable disposition, the difference between your adjusted tax basis (adjusted as described below) and the amount realized will be capital gain or loss to you. Your tax basis in the shares of common stock you acquire under the plan initially will be your purchase price for those shares. Your tax basis will be increased at the time of your disposition of shares by the taxable amount described above. JPMorgan Chase will be entitled to a tax deduction equal to the amount of ordinary income you recognize upon the disposition.
Because you must make the above calculations on a share-by-share basis, and you'll have a different adjusted tax basis and holding period for the shares you acquire each quarter, you should keep careful records regarding the tax basis and number of shares you acquire under the plan each quarter and the amount of ordinary income you must recognize upon the disposition of those particular shares. You should consult a tax advisor concerning the permissible methods of designating shares subject to a sale or other disposition and whether such a designation would affect the tax consequences to you.
Other Tax-Related Information
Periodic Statements
When you participate in the plan, you'll periodically receive a statement from Mellon Investor Services detailing your account activity. The statement will show how many shares of stock you own and will serve as your proof of ownership. Your periodic statements will help determine any tax liability you may have.
Here are some additional tax guidelines for participants in the Employee Stock Purchase Plan:
  • If you sell or otherwise dispose of the shares you purchase or hold under the plan, you may owe separate state and local income taxes. (Again, if you live outside the United States, different tax rules may apply. You should consult with a tax advisor on these issues.)
  • The actual price paid for shares is documented on your account statement from Mellon Investor Services. Please keep all statements for tax purposes.
  • You will receive a Form 1099B detailing your stock sale proceeds.
  • Dividends are reportable as taxable income for the year in which they are credited to your account. You owe taxes on these dividend payments. All participants in the Employee Stock Purchase Plan will receive a record of any dividend payments on a 1099DIV Form, which will be provided on an annual basis, and which will tell you the amount of dividend income derived from "qualified dividends" (see "U.S. Federal Income Tax Consequences"). If you withdraw shares from the plan but do not sell them, dividends on those shares are paid to you in cash. Dividends are subject to ordinary income tax in the year in which they are paid.