When you buy stock under an employee stock purchase plan (ESPP), the income isn’t taxable at the time you buy it. You’ll recognize the income and pay tax on it when you sell the stock. When you sell the stock, the income can be either ordinary or capital gain.
How much should I invest in my company stock?
Allocating no more than 10 percent of your total portfolio to company stock is a good rule of thumb, says Mike Piershale, president of Piershale Financial Group based just outside Chicago. But he also suggests considering the size of your portfolio outside your company plan.
What does it mean to sell employee stock purchase plan?
Learn About Selling Employee Stock Purchase Plan Shares. An employee stock purchase plan (referred to as an ESPP) allows you to buy shares of company stock at a price that is below market value. The terms of each plan differ, but generally, you can buy shares for about a 10-15% discount.
Do you have to sell your stock if you bought it from your employer?
If you’ve purchased stock from your employer, you should have other investments that offset the risk of holding only one stock. Depending on your financial situation and the taxes you incur from a stock sale, you might consider buying the stock and then selling it.
Can a non-employee participate in an employee stock purchase plan?
Eligibility. 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, but not the obligation, to participate in the plan.
Do you pay taxes when you sell ESPP shares?
If you have substantial assets outside of your company stock, then scheduling your stock sales in the most tax-efficient way may be more important. When you purchase ESPP shares, you don’t owe any taxes. But when you sell the stock, the discount you received on the price is considered additional compensation, so the government will tax it.
