<<Annually the company I work for purchases shares of its own stock at the beginning of the year at a discount. It then distributes these shares to its employees as a bonus at the end of the year at market value. What is my tax basis in the shares of stock I receive as a bonus? Since it cost me nothing to receive this stock, would it be considered a capital gain or ordinary income? At what tax rate?>>

I'm not sure what you mean by purchasing its own shares at a discount. Generally, companies can sell their shares at a discount, but I don't know how they would buy them at a discount.

In any event, your tax consequences upon receiving shares as a bonus are not dependent on how the company acquired the shares. You will recognize ordinary income measured by the fair market value of the stock on the date you receive it, assuming you do not take it subject to a substantial risk of forfeiture (as defined in the Internal Revenue Code and Regulations). The company is required to withhold on this amount and report it as part of your compensation on your W-2. your tax basis will be the amount included in your income (FMV at the time you received the stock).

KAT in Chicagoland