The IRS imposes a limit on the amount of stock an employee can purchase through an ESPP. This limit is commonly referred to as the "Section 423(b) Limit" or "Statutory Limit" and is set at $25,000 of fair market value (FMV) of the company stock per calendar year.
The IRS limit ensures that participants in ESPPs receive certain tax advantages while preventing abuse of the tax code. If the value of stock purchased by an employee exceeds the IRS limit of $25,000 FMV in a calendar year, the excess amount is refunded back to you at the end of the offering period.
It is important to note that the $25,000 limit is applied based on the fair market value of the stock on the first day of the offering period. While it may seem that you won't hit the limit unless you contribute $25,000, but if the stock price goes down you may end up purchasing fewer shares than expected.