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Employee Stock Purchase Plans – Learning the Basics

Employee Stock Purchase Plans – Learning the Basics

 

Will your ESPP help you reel in some cash?

Will your ESPP help you reel in some cash?

Employee stock purchase plans and all that may be associated with them are tough topics to fully comprehend, and while each company may have their own individual plans and procedures, the core concepts remain traditionally the same. The most frequently asked questions arise when an employee is faced with participating in an employee stock purchase plan for the very first time. To help ensure that you have an understanding of the choices, we have compiled a list of common questions and answers with the help of Fidelity.com, covering all the core concepts associated with these plans.

What is an employee stock purchase plan?

An employee stock purchase plan, (ESPP) is a stock plan provided by an employer or company that allows employees to use their payroll deductions to purchase company stock, typically at a discount. This discount can be up to 15%.

What is a qualified section 423 Plan?

According to Fidelity, a qualified 423 employee stock purchase plan allows employees to purchase stock at a discount from fair market value under U.S. tax law without any taxes owed on the discount at the time of purchase. In some cases, a holding period will be required for the purchased stock in order to receive favorable long-term capital gains tax treatment on a portion of your gains when the shares are sold.

What is a non-qualified ESPP?

A non-qualified employee stock purchase plan typically works the same as a qualified 423 plan, sans the preferred tax treatment.

Who is eligible to participate in the plan?

Traditionally, all current employees within a granting company are eligible to participate in an ESPP program, with the usual exception of those who work less than 20 hours per week. However, it is essential to understand your individual company’s rules and eligibility standards as they do vary. 

How do I enroll in an employee stock purchase plan?

The enrollment procedures for any ESPP may vary from company to company; it is essential to familiarize yourself with every aspect of your individual plan. There is typically an enrollment period and most plans do not allow participants to enroll after that period ends. Those participants must wait until the next enrollment period to participate in the plan.

 If you or your fellow employees are looking for further help understanding their ESPP, we highly encourage you to contact Stock Connections today. We are ready to help.

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today.

Photo Credit: Tax Credits

 

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