Employee Stock Purchase Plan (ESPP)

An Employee Stock Purchase Plan (ESPP), is a company-sponsored program that enables employees to purchase shares of their employer’s stock typically at a discounted price—often up to 15% below market value—through convenient payroll deductions on a set schedule.​

Participating employees select the percentage or dollar amount they wish to set aside from their after-tax paycheck, accumulate contributions over an offering or purchase period, and at the end of that period, those funds are used to buy company stock for the employee, usually at the discounted price or with a "look-back" feature that guarantees the lowest price during the period. ESPPs may be “qualified” (meeting IRS Section 423 requirements for tax advantages and shareholder approval) or “non-qualified” (with more flexible terms but less favorable tax treatment). Employees may sell, hold, or transfer purchased shares subject to plan-specific rules, such as mandatory holding periods or trading windows.​

These plans are popular for providing employees an opportunity to become company shareholders, benefit financially if the stock appreciates, and encourage retention and loyalty. Taxation of gains from ESPPs depends on the plan type and how long the shares are held before sale.