Understanding Stock Purchase Dispositions

Before you begin processing participant dispositions:

• Establish disposition holding periods using the Governing Body Rules - Stock Purchase Rules page.

• Set up earnings codes using the Stock Details - Stock Purchases page.

• Confirm a stock purchase using the Confirm Stock Process page.

A sale or transfer of stock purchased through a stock purchase plan, is called a qualifying disposition or disqualifying disposition, depending on the holding period requirements set up in the governing body rules.

For IRS governed plans, a disqualifying disposition is a sale or transfer of stock that has been held less than two years from the grant date and less than one year from the purchase date. A corporation is entitled to a tax deduction equal to the participant's ordinary income on the disqualifying disposition. To claim the tax deduction, a corporation must report the ordinary income on the participant's W-2 form. When the holding period is met, the sale is considered a qualifying disposition.

Because companies receive a tax break if the disqualifying disposition holding period is not met, participants are encouraged to report stock sales to their companies. If shares are held at a brokerage firm, a company might require that the brokerage firm report the dispositions. You must determine the best way to gather information about participant dispositions so that you can track the tax implications of the transactions.

Stock Administration determines if dispositions are qualified or disqualified according to your business rules. If you use PeopleSoft Payroll for North America, you can send the disposition information directly to payroll for reporting in the participant's earnings statement.