Employee Stock Purchase Plans (ESPPs)
An Employee Stock Purchase Plan is a qualified plan under Section 423 of the IRS Code. An ESPP allows eligible employees to purchase their Company's stock at a discount. Employees can then get favorable tax treatment upon the sale of the stock during unrestricted periods.
Key Provisions
- Employee may purchase Company stock at a discounted price (usually 15%)
- Stock purchased as a payroll deduction
- Employee can not be given options at time of grant in excess of $25,000 FMV
- Employee is not taxed until sale; income recognized as a capital gain
Advantages
- Plan can offer options with an option price of between 85% and 100% of FMV
- Company is able to implement work incentives for employees without draining valuable liquid assets
- Does not require the company to file Form 5500
- All employees are eligible with some exceptions (HCE's, part-timers, and employees with less than two (2) years service)
- No tax on the purchase of stock
- Employee not taxed until sale of underlying stock
- Offers opportunity to purchase stock at up to a 15% discount of FMV
Disadvantages
- Qualified plan requires all employees be eligible to participate. Exceptions: HCEs, part-timers, and employees with less than 2 years of service
To find out more on how Compensation Resources, Inc. can help your company with Employee Stock Purchase Plans (ESPPs) , please contact us or call us directly to speak with our compensation consultants at 877-934-0505.
