Employee Stock Purchase Plan (ESPP)

An employee stock purchase plan (ESPP) is a program that allows employees to purchase company stock at a discount. The discount is typically set at a percentage below the stock's fair market value (FMV) on the purchase date. ESPPs are often offered as a way to attract and retain employees, and can be a valuable way for employees to build wealth.

There are two main types of ESPPs:

• Qualified ESPPs: These plans meet certain requirements set by the Internal Revenue Service (IRS), and the discount on the stock purchase is not taxed as income until the stock is sold.
• Nonqualified ESPPs: These plans do not meet the IRS requirements, and the discount on the stock purchase is taxed as income in the year it is received.

The terms of ESPPs vary from company to company, but some common features include:

• A set period of time during which employees can participate in the plan.
• A maximum amount of stock that employees can purchase each year.
• A minimum holding period for the stock after it is purchased.

ESPPs can be a great way for employees to build wealth, but it is important to understand the terms of the plan before participating. Employees should also be aware of the risks involved in investing in company stock, such as the potential for the stock to lose value.

Here are some additional details about ESPPs:

• The discount on the stock purchase is typically set at a percentage below the stock's FMV on the purchase date. The discount is not taxed as income until the stock is sold.
• The maximum amount of stock that employees can purchase each year is typically set at a percentage of their salary.
• The minimum holding period for the stock after it is purchased is typically six months to one year.
• ESPPs are often offered as a way to attract and retain employees.
• ESPPs can be a valuable way for employees to build wealth, but it is important to understand the terms of the plan before participating.
• Employees should also be aware of the risks involved in investing in company stock, such as the potential for the stock to lose value.