Taxes 101 Taxes 101: Employee Stock Purchase Programs Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Elle Martinez Published Jan 11, 2010 - [Updated Jul 10, 2019] 2 min read What are Employee Stock Purchase Programs? Employee Stock Purchase Programs (ESPP) allow employees to buy their company’s shares at a discounted rate . You make purchases with after tax money from your paycheck with payroll deductions. The company will purchase the shares at designated times at prices lower that the market price. This is usually referred to as grant or offer price. An advantage right off the bat of participating in an employee stock purchase program is getting company shares at a lower price than the market. If you and the company are working hard and business is booming, you can come out ahead. It can be great help as you plan and save for retirement. You want to make sure, though, that your portfolio is diversified and not too heavily invested in your company. While some employees became wealthy owning stock in companies like Google, if the company goes south you and you’re heavily invested in your company’s shares, you may be left with nothing as was the case with Enron. What the Tax Implications Are When you purchase shares through an Employee Stock Purchase Programs, you do not have to pay taxes on them. When you decide to sell your shares,though, expect to pay capital gains taxes. Keep in mind that the difference between discount you had purchased the shares at and the market price is considered taxable as if it were compensation. To determine taxes owed with selling your shares, you must consider if it was a qualifying or disqualifying disposition. This is determined by how long you’ve held the shares and the time from the beginning of the offering period. Typically if you hold the company shares long enough to have a qualifying disposition you can reduce some of your tax burden (there are exceptions to that rule). Employee Stock Purchase Programs can be a great tax deferred option for those hoping to build their retirement fund. If you have that option at work, seriously look into it. Previous Post Estate Planning Next Post Taxes 101: Alternative Minimum Tax Written by Elle Martinez Elle helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second. More from Elle Martinez Visit the website of Elle Martinez. Follow Elle Martinez on Facebook. Follow Elle Martinez on Twitter. One response to “Taxes 101: Employee Stock Purchase Programs” There is certainly a great deal to know about this issue. I really like all the points you’ve made. Reply Leave a ReplyCancel reply Browse Related Articles 401K, IRA, Stocks What Happens to Employees When a Company Goes Public? Taxes 101 Basics of 2010 HIRE Act Taxes 101 TaxCast: Last-Minute Tax Tips Taxes 101 What are Income Taxes? Self-Employed Moving from Employee to Self-Employed? Here’s What it… Income and Investments What Are Pre Tax Dollars? (Deductions & Contributio… Tax Tips The Tax Implications of Having a Nanny or Housekeeper 2022-03-23 Self-Employed Does Tutoring Make Me Self-Employed? Taxes 101 Should You Take the Standard or Itemized Deduction?