Employee Stock Purchase Plan - ESPP

What is an 'Employee Stock Purchase Plan - ESPP'

An employee stock purchase plan (ESPP) is a company-run program in which participating employees can purchase company shares at a discounted price. 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.

BREAKING DOWN 'Employee Stock Purchase Plan - ESPP'

Depending when you sell 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 one year after the purchase date the disposition will not be qualified. These positions will have different tax implications.

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RELATED FAQS
  1. What are employee share purchase plans?

    Find out what an employee stock purchase plan is and how it can be advantageous for an employer and an employee to participate ... Read Answer >>
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  3. Do I own a stock as of the trade date or the settlement date?

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