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Employee Share Purchase Plans: A Hidden Treasure?

November 06, 2024 (3 min read)

Publicly traded companies can offer their employees access to purchase employer stock on a discounted basis, using an employee stock purchase plan that complies with I.R.C. § 423. These plans are broad-based programs that, during an “offering period” (typically six months), collect after-tax contributions from participating employees and apply the money to buy discounted company stock on an identified date. Plans have a $25,000 calendar year per-employee limit and can offer up to a 15% discount without taxing the employee (at the time the stock is allocated).  The stock purchase price is based on the traded value of the stock at the beginning or end of the offering period. Employees who hold the stock for at least a year (and at least two years from the grant date), enjoy treatment of gain on the sale as a long-term capital gain subject to the lower long-term capital gains tax rates. Otherwise, any gain is taxed as ordinary income.

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