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An employee stock purchase plan (ESPP) is a type of stock plan that permits employees to use after-tax payroll deductions to acquire shares of their company's stock (this differs from a 401(k) plan, to which money is contributed before income tax withholding). Plans can have different contribution rules and features, including discounts or company contributions (see a related FAQ).
The most common type of ESPP is known as a "Section 423 plan" and offers tax advantages for the purchase discount. This type of plan is a "qualified" ESPP (not to be confused with "qualified" retirement plans) because it meets certain requirements set by the Internal Revenue Code. Other types of plans are either nonqualified or direct purchase plans. |
