In the United States, an employee stock purchase plan (ESPP) is a tax-efficient[ means by which employees of a corporation can purchase the corporation’s stock, often at a discount.
Employees contribute to the plan through payroll deductions, which build up between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of the participating employees. The amount of the discount depends on the specific plan but can be as much as 15% lower than the market price.
Depending on when the employee sells the shares, the disposition will be classified as either qualified or not qualified. If the position is sold two years after the offering date and at least one year after the purchase date, the shares will fall under a qualified disposition. If the shares are sold within two years of the offering date or within one year after the purchase date the disposition will not be qualified. These positions will have different tax implications.
The majority of publicly disclosed ESPPs in the United States are tax-qualified plans that follow the rules of Section 423 of the IRC.
Participation rates in the US in ESPPs is around 30%.
- ^ Jump up to:ab Babenko, Ilona; Sen, Rik (2014-03-14). “Money Left on the Table: An Analysis of Participation in Employee Stock Purchase Plans”. Rochester, NY. SSRN 2166012.
- ^Baker, Alisa (2012). The Stock Options Book, 13th edition. Oakland, California: The National Center for Employee Ownership. pp. 67–87. ISBN 978-1-932924-91-6.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder TBIL.co STATX Fund.