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 stock directly 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 employee s accumulated funds to purchase stock in the company on behalf of the participating employees understanding employee stock purchase plans espps with an employee stock purchase plan employees have the option to buy stock in their employer at a discounted price this is offered as a benefit of employment when they are hired in the same way that access to a 401 k plan for retirement savings is a benefit the goal is that employees can purchase valuable stock for lower than the market price allowing them to make a profit the company growing and becoming more successful then causes the stock to become even more valuable which then increases the benefit to the employee with employee stock purchase plans the discount rate on company shares depends on the specific plan but can be as much as 15 lower than the market price espps may have a look back provision allowing the plan to use a historical closing price of the stock this price may be either the price of the stock offering date or the purchase date often whichever figure is lower espps are categorized in two ways qualified and non qualified qualified plans require the approval of shareholders before implementation and all plan participants have equal rights in the plan the offering period of a qualified espp cannot be greater than three years and there are restrictions on the maximum price discount allowable non qualified plans are not subject to as many restrictions as a qualified plan however non qualified plans do not have the tax advantages of after tax deductions that qualified plans do participation in the company espp may only commence after the offering period has begun this period begins on the offering date and this date corresponds with the grant date for the stock option plans the purchase date will mark the end of the payroll deduction period some offering periods have multiple purchase dates in which stock may be purchased your employment contract should contain these dates if you are unsure where to find information about your eesp contact the hr department at your employer espps typically do not allow individuals who own more than 5 of company stock to participate restrictions are often in place to disallow employees who have not been employed with the company for a specified duration often one year all other employees typically have the option to participate in the plan though they are not required to during the application period employees state the amount to be deducted from their pay and contributed to the plan this may be subject to a percentage limitation in addition the internal revenue service irs restricts the total dollar amount to be contributed to 25 000 per calendar year most espps grant employees a price discount of up to 15 taxes and employee stock purchase plansthe taxation rules regarding espps are complex in general you will be taxed on any stock you purchase through an espp during the year you sell it it can be counted either as taxable income or as a deductible loss the difference between what you paid for the stock and what you received when you sell it is considered a capital gain or loss any discount offered to the original stock price is taxed as ordinary income while the remaining gain is taxed as a long term capital gain the entire gain will be taxed as ordinary income if you have not held it for can i cash out my employee stock purchase plan yes the payroll deductions you have set aside for an espp are yours if you have not yet used them to purchase stock you will need to notify your plan administrator and fill out any paperwork required to make a withdrawal if you have already purchased stock you will need to sell your shares can i sell espp stock right away yes you can sell stock purchased through your espp plan immediately if you want to guarantee that you profit from your discount otherwise the value of the stock may go up which increases your profit or it may go down causing you to lose money however you will pay a lower tax rate if you hold the stock for more than a year and sell it more than two years after the offering date 