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Dividend Reinvestment Plan
A company plan that allows shareholders to automatically reinvest cash dividends into additional shares of company stock. The purchase of additional shares is usually without commission. An employee stock purchase plan may have this feature for shares held after purchase, or it may use the cash from the dividends to buy shares at a discount with the accumulated payroll deductions inside the ESPP. As with regular cash dividends, you report the dividends as income on your tax return. After you sell shares, you report the sale and will be taxed on the amount by which the sales proceeds exceed your cost basis (i.e. the value of the stock when the dividends are reinvested).
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