Stock Plan Services FAQs: ESPP
What is an ESPP?
"ESPP" stands for Employee Stock Purchase Plan, which is a type of plan that provides you with a convenient way to buy your company stock. If you enroll, you choose an amount to be deducted from your paycheck, and those deductions accumulate to purchase stock on a predetermined schedule.
How does an ESPP work?
An ESPP lets you choose the amount that you want to contribute each paycheck to the plan. Depending on your plan, this can be a percentage or a dollar amount. Each pay period, your company deducts this amount (after tax) and holds on to it until it’s time to purchase your shares. On the designated purchase date, your company uses that money to purchase your shares of company stock.
Consider how much you can afford to have deducted from your paycheck before you enroll.
What are the benefits of participating?
- An ESPP can be a convenient way to save for the future and potentially create extra cash.
- An ESPP can make saving easy and painless, since there are regular contributions coming from your paycheck (this removes the temptation to spend the money).
- An ESPP doesn't just offer the ease of routine saving; it can give you another way to participate in your company's potential success.
What is a look-back period?
If your company offers a look-back provision, this compares the stock price at the beginning of the offering period with the price on the purchase date and uses the lower amount to calculate the purchase price. Because a look-back feature allows you to buy shares at whichever price is lower, the price at the beginning OR the end of the period, it is an attractive feature.
Example 1 – Stock Price Increases: Your company stock is trading at $10/share at the beginning of the offering period and $15/share by the purchase date. With the look-back provision, you get to buy shares at the lower of these two prices, which in this example is $10/share.
Example 2 – Stock Price Decreases: Your company stock is trading at $20/share at the beginning of the offering period but falls to $15/share by the purchase date. In this instance, the look-back feature doesn’t apply, and you buy shares at the lower purchase date price, which in this example is $15/share.
How do I enroll in the ESPP?
If you're eligible and the enrollment window is open, you’ll see Enroll next to your ESPP's name when you log in to Fidelity NetBenefits®Log In Required. You'll be prompted to open a Fidelity Account® if you don't already have one. This is the account where your purchased shares will be deposited. To finish enrolling, simply choose an amount to contribute and then agree to the terms.
For more help enrolling in your ESPP, please review this guide.
What is an enrollment period?
It's your chance to get into the ESPP or make changes. During this period, which is predetermined by your employer, you will be able to enroll and select how much you want to contribute from your paycheck.
What is an offering period?
During the offering period, your company collects after-tax payroll deductions and holds the money until it’s time to purchase stock. The number of offering periods during the year depends on your company plan, but most commonly on a quarterly or semiannual basis.
What is the purchase date?
This is a company-determined date after the offering period when your company uses the money you have contributed to buy company stock.
When will my shares be deposited into my Fidelity Account®?
Your shares will be deposited as soon as administratively feasible following the purchase date. You will receive notification from Fidelity once your shares are in your Fidelity Account®.
Where will I be able to see my shares?
Once the purchase has been completed, shares will be deposited into your Fidelity Account®. Log in to NetBenefits®Log In Required to view your shares.
Where can I see the stock price?
You can visit Fidelity.com to see the stock price. The stock price of publicly traded shares can also be found on many financial websites.
What is a holding requirement?
If your plan has a holding requirement, this is the amount of time that your ESPP shares must be held before they can be sold. If your company requires you to hold on to your shares for a period of time, these requirements are described in the plan documents.
Are there tax consequences to selling my shares?
There are several factors that may impact how selling shares may affect your taxes. These include but are not limited to the type of plan you have, how long you hold your shares, for and the price at which you sold them. You should contact a tax specialist with questions regarding your specific tax situation.
For more information, please review this guide.
What's the difference between a qualified and nonqualified plan?
A qualified plan is also known as a Section 423 plan. The shares purchased in a qualified ESPP are not taxed at purchase and can be eligible for preferential tax treatment at sale if held for the necessary holding periods.
To receive preferential tax treatment, the shares must meet both of the following holding periods when they’re sold:
- At least one year from the purchase date.
- At least two years from the offering date (the date the offering period begins).
But you don’t have to hold them until they are qualified. Shares sold before the holding period ends are considered a "disqualifying disposition."
What's the difference? More income can be treated as capital gain in a qualified disposition. Nonqualified ESPPs don't qualify for this favorable tax treatment because the gain at purchase is taxed by your company at the time of purchase.
For more information, please review this guide.
The type of plan you have is determined by your company.
Whom should I contact if I have questions about the ESPP?
If you have any general questions about the ESPP or the enrollment process, call Fidelity Stock Plan Services at 800-544-9354.
Investing involves risk, including risk of loss.
Fidelity does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation.
Fidelity Stock Plan Services, LLC, provides recordkeeping and/or administrative services to your company's equity compensation plan, in addition to any services provided directly to the plan by your company or its service providers.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917