Employee Stock Purchase Plans (ESPPs)

Light music plays throughout.

Onscreen text:
Employee Stock Purchase Plan:
What is it?

Narrator [off-screen]: An employee stock purchase plan, or ESPP, is an optional benefit that allows employees to set aside after-tax dollars from each paycheck to buy shares of their company's stock.

Onscreen text:
An employee stock purchase plan, or ESPP, is an optional benefit that allows employees to set aside after-tax dollars from each paycheck to buy shares of their company's stock.

An animation of a woman sitting at a desktop computer appears. She adjusts a desk lamp and sets down a coffee mug.

Narrator: And these shares are available to employees at a discounted price that's lower than what you would pay on the open market.

Onscreen text:
And these shares are available to employees at a discounted price that's lower than what you would pay on the open market.

The woman turns on the computer and views a page showing a pie chart of stock allocations. As she looks on, the price goes from $400 a share to $300.

Narrator: There are a few important terms and dates associated with ESPPs.

The desktop screen enlarges to replace the animation.

Narrator: Most companies offer a two- to four-week enrollment period. After you're enrolled, the Offering Period begins, which means your after-tax payroll deductions start accumulating.

The word "Enrollment" appears. A line emerges from "Enrollment," ending with "Offering Period begins" to represent the amount of time between the two events. A calendar rises out of "Offering Period begins."

Narrator: Your contributions build up during the Offering Period, and then shares of your company's stock are bought for you on the Purchase Date.

The line continues on past the calendar into the "Offering Period," where cash appears above it. The Offering Period ends at the Purchase Date.

Narrator: Multiple Purchase Periods fit into what is called an Offering Period, and each one ends with a Purchase Date.

The Offering Period separates into two different Purchase Periods with individual Purchase Dates.

Narrator: The Purchase Date is when the money that has been accumulating is used to purchase shares of the company stock at the discounted price.

A circle containing cash appears, which is then replaced by certificates. The text "Purchase Date: buy shares of company stock at discounted price." appears next to the certificates.

Narrator: The purchase price is the stock price at the end of the purchase period, less the discount offered. In this example, the company's stock price on the purchase date is higher than the price you bought it for. Therefore, there is an unrealized gain.

A line graph showing an upward trajectory of a company's stock price appears, representing the time between the Offering Date and the Purchase Date.

Narrator: The discount is applied to the company's stock price on whichever date the price is lower. In this example, the purchase date price is lower than what you paid for it on the offering date, so the discount is applied to the Purchase Date. Of course, be sure to check with your company for specific plan information.

The same line graph showing a company's stock price, this time with a downward trajectory for the price by the Purchase Date, appears. A blue box containing the text "Check with your company for specific plan information." appears above the graph.

Narrator: Let's take a look at a really simple example.

Onscreen text:
Let's take a look at a really simple example.

Narrator: Say you begin setting aside $300 from every paycheck on your company's Offering Date, and that the stock price on that day was $150. At the end of the Offering Period, on the Purchase Date, the stock price has gone up to $160.

The text "Offering Date" appears, and a line emerges upward to a circle containing cash. The text demonstrates that the viewer contributes $300 from each paycheck when the stock price is $150. A line graph of the company stock price increases from $150 at the Offering Date to $160 by the Purchase Date.

Narrator: Let's say your company offers a 15% discount. The lower of the two stock prices is $150 minus the 15% discount, which gives you a purchase price of $127.50.

Circles appear, visually demonstrating the narrator's explanation.

Narrator: In this case, the stock price on the purchase date, $160, is higher than the original discounted price you locked in, $127.50. This means that the $32.50 difference is the gain you earn per share.

The line graph representing the company's stock price reappears with the upward trajectory, visually demonstrating the narrator's explanation.

Narrator: This example is of course hypothetical. Be sure to check with your company for specific information.

A blue box containing the text "This example is hypothetical. Check with your company for specific information ." appears above the graph.

Narrator: Remember: Your Schwab account is your destination for viewing and managing your awards. Just log in and click on Equity Awards.

Onscreen text:
Remember: Your Schwab account is your destination for viewing and managing your awards. Just log in and click on Equity Awards.

Narrator: Still have questions? Give us a call.

Onscreen text:
Still have questions?
To talk to a Schwab Stock Plan Specialist, call 800-654-2593.
International participants, call +1-602-355-3408.

Narrator: Or, from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

Onscreen text:
Or from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

The Charles Schwab logo appears. Schwab brand music plays.

Onscreen text:
Own your tomorrow®

FOR GENERAL INFORMATIONAL PURPOSES ONLY.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, legal advisor, or investment manager.

Schwab Stock Plan Services provides equity compensation plan services and other financial services to corporations and executives through Charles Schwab & Co., Inc. ("Schwab"). Schwab, a registered broker-dealer, offers brokerage and custody services to its customers.

An employee stock purchase plan (ESPP)¹ is an optional program that allows you to buy shares of your company's stock at a discounted price. You select how much money you'd like to set aside (up to a limit) to purchase the stock, and your employer deducts it from your after-tax paycheck.

We'll cover:

Enrolling in an ESPP
Participating in an ESPP
ESPP tax implications
Cost basis and tax forms
Common questions about ESPPs

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Onscreen text:

Employee Stock Purchase Plan: How to Enroll

A white panel appears from the left side of the screen. This white panel stays throughout the video. On the right, we see a computer screen. On that screen is the Schwab Landing page and the account login header at the top is highlighted in blue.

Narrator [off-screen]: During open enrollment, enroll in your company's ESPP by logging into your account at schwab.com

Onscreen text: Log into your account.

Narrator [off-screen]: From the Account Summary page, click Equity Awards.

Onscreen text: Click Equity Awards.

A screen showing account totals comes forward and the background darkens slightly. Then we see the screen for the dashboard.

Narrator [off-screen]: That brings you to the Equity Awards dashboard. Under notifications, click Enroll.

Onscreen text: Click Enroll.

Narrator [off-screen]: A window will pop up where you can enter the percentage or dollar amount of your paycheck you want to contribute to your ESPP. Contribution amounts will vary by company.

Onscreen text: Enter contribution amount.

We see a screen pop up that shows text about contribution amounts. Behind it, the rest of the screen is darkened.

Narrator [off-screen]: Then, read and agree to the terms and click Enroll.

Onscreen text: Agree to terms and click enroll.

Narrator [off-screen]: A confirmation window will pop up letting you know you are enrolled.

A confirmation window pops up and the screen behind darkens slightly.

Onscreen text: Confirmation of enrollment.

Narrator [off-screen]: Once enrolled, you can change your contribution amount by clicking Manage ESPP from the dashboard of the Equity Awards Center.

Onscreen text: To change contribution amount, click Manage ESPP.

Narrator [off-screen]: Then click Change.

Onscreen text: Confirm change.

Screen scrolls to the bottom and a blue highlight circle covers the "Change" button.

Narrator [off-screen]: Enter the new amount you want to contribute and click update.

Onscreen text: Enter new amount and click Update.

A blue box comes in from the right and says "Check your plan for specific details about changing your contributions."

Narrator [off-screen]: You can withdraw from the plan at any time. From the Manage ESPP link, click Withdraw.

Onscreen text: Click Withdraw.

A blue box comes in from the right and says "If you choose to withdraw, and had accumulated money during the offering period, that money will be refunded (without interest) as soon as possible."

A blue bar sweeps across the screen as it turns white.

Narrator [off-screen]: Still have questions? Give us a call.

Onscreen text:

Still have questions?

To talk to a Schwab Stock Plan Specialist, call 800-654-2593.

International participants, call +1-602-355-3408.

Narrator [off-screen]: Or, from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

Onscreen text:

Or from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

The Charles Schwab logo appears. Schwab brand music plays.

Onscreen text:

Own your tomorrow^®

FOR GENERAL INFORMATIONAL PURPOSES ONLY.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, legal advisor, or investment manager.

Enrolling in an ESPP

When you're eligible to participate in your company's ESPP, you'll receive an enrollment email from your employer or Schwab prior to your employer's open enrollment period. This email explains the specifics of the plan, including the discount you're being offered and when the shares can be purchased. For more information, check with your HR department or legal group for details on important dates and procedures.

Participating in an ESPP

To participate in an ESPP, you select a percentage or dollar amount to contribute to your plan, similar to a 401(k) or HSA contribution election. That amount will automatically deduct from your after-tax paycheck. The money will be held by your company until the purchase date, at which point the shares will be automatically purchased on your behalf.

Light music plays throughout.

Onscreen text:

Employee Stock Purchase Plan: How You Are Taxed

Narrator [off-screen]: With an ESPP plan, decisions you make about your shares determine how you are taxed.

An animation of a woman and a man looking up at a street sign appears. The directions on the street sign read "contributions," "purchase date," "compensation," and "income."

Narrator [off-screen]: On the Purchase Date, your ESPP contributions were used to buy shares at the discounted price, instead of the Fair Market Value of the shares.

Onscreen text:

When you bought shares at the discounted price.

The signpost rotates through each direction, starting with "Purchase Date" which turns red and rises to the top of the pole.

Narrator [off-screen]: You didn't have to pay taxes on the money you used to purchase the shares because your contributions to purchase shares were made after payroll taxes had been taken.

Onscreen text:

The money you used to buy them had already been taxed.

The sign for "Contributions" spins up the pole and turns red as it rises to the top.

Narrator [off-screen]: In buying shares at a discount, though, the difference between what you paid for the shares and the Fair Market Value when you sell the shares is considered income.

Onscreen text: Fair Market Value – Amount paid for shares = Income

The sign for "Income" spins up the pole and turns red as it rises to the top.

Narrator [off-screen]: If you sell the shares, you are responsible for paying taxes on this income. The amount may or may not appear as compensation on your W2 for the year.

Onscreen text: When you sell, you pay taxes on the income.

The sign for "Compensation" spins up the pole and turns red as it rises to the top.

Narrator [off-screen]: After the Purchase Date, you have the option to hold or sell your shares.

A red circle with a calendar illustration appears. A line draws out from that to a blue circle that says "Hold" while another line draws out symmetrically that says "Sell."

Narrator [off-screen]: Whichever you choose to do, you will come across the terms qualifying disposition and disqualifying disposition.

Onscreen text: Whichever you choose, you'll either have a Qualifying or Disqualifying Disposition.

A grey box appears in between the two circles and a line draws down from the word "Hold" towards a blue circle that says "Qualifying Disposition." Beneath the circle is a table representing a timeline.

Narrator [off-screen]: A Qualifying Disposition is when you have held the shares for at least 2 years, plus one day, from the offering date and at least one year after the purchase date.

The words Purchase Date and Year 1 turn bold and blue as the narrator talks. A blue box moves in from the left side of the screen.

Onscreen text: When you sell your ESPP shares after this period of time, the sale will be taxed more favorably.

Narrator [off-screen]: When you sell your ESPP shares after this period of time, the sale will be taxed more favorably.

A line draws from beneath the table down towards a blue box.

Onscreen text: Income = Lesser of discount on offer date or actual gain

Narrator [off-screen]: In a Qualifying Disposition, the lesser of the discount on Offering Date or your actual gain is considered W-2 income and may be taxed at ordinary income tax rates.

A line extends from the Sell circle and draws down towards a blue circle that says "Disqualifying Disposition"

Narrator [off-screen]: If your sale is a Disqualifying Disposition, or anything that doesn't meet the standard for a qualifying disposition, the gain may also be taxed at a combination of ordinary income tax rates and capital gains tax rates. Both types of dispositions are taxed at a combination of ordinary income and capital gains rates.

A line extends from the circle down towards a box. As the narrator mentions "ordinary" and "capital gains" those words become bolded.

Onscreen text: Gain taxed at ordinary income tax rates + capital gains tax rates.

Narrator [off-screen]: You can sell before the holding period is met, but this could be considered a Disqualifying Disposition.

Line draws down and points towards a box that has a shopping cart with animated certificates that leave the cart.

Narrator [off-screen]: If you hold onto your shares at least through the qualifying disposition period just described, you will pay ordinary income tax on the lesser of the discount on the price at the offering date or the sale price minus purchase price.

Onscreen text: If you hold, you'll be taxed on income through Capital Gains Tax

A red dotted line extends from the right side of the box and lands on a grey square. In the square, a stack of papers animates in.

Narrator [off-screen]: When you do sell, you'll file a 1099 tax form and your tax rate may depend on whether your sale meets IRS requirements for a lower tax rate on the profit from the sale of shares. This is considered a Qualifying Disposition.

Onscreen text: When you do sell: file a 1099 tax form.

A white line extends off the right side of the box and lands on a red dot. Above the dot is an icon of a certificate.

Narrator [off-screen]: If you hold onto your shares for more than a year, you have what's called a long-term capital gain. And there are some advantages to holding onto your shares.

Onscreen text: There are some advantages to holding onto your shares.

The line extends to the right beneath the certificate. The line intersects with another red dot before moving up and then turning downwards. The icon of the certificate follows the line as it turns up and down. The line eventually flattens out as the certificate icon moves slowly across the screen just above the line. It then turns down again.

Narrator [off-screen]: However, holding them for longer can open you up to additional risk, because the stock price could go down, more than offsetting tax savings you receive.

Onscreen text: However, holding can open you up to more risk.

Narrator [off-screen]: If you hold and the shares' value is lower when you sell than what you paid, you may be able to claim a capital loss on your taxes the year you sold the shares.

Onscreen text: You may be able to claim a capital loss if the shares' value is lower than when you sell.

A blue arrow sign pointing left extends up out of a red dot. Inside the arrow sign it says "Review insider trading policy before trading."

Narrator [off-screen]: Review your company's insider trading policy before trading, to make sure you are trading during open trading windows and following your company's insider trading policies.

A blue bar sweeps across the screen as it turns white.

Narrator [off-screen]: Still have questions? Give us a call.

Onscreen text:

Still have questions?

To talk to a Schwab Stock Plan Specialist, call 800-654-2593.

International participants, call +1-602-355-3408.

Narrator [off-screen]: Or, from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

Onscreen text:

Or from your Schwab account, navigate to Equity Awards and click on Knowledge Center.

The Charles Schwab logo appears. Schwab brand music plays.

Onscreen text:

Own your tomorrow^®

FOR GENERAL INFORMATIONAL PURPOSES ONLY.

ESPP tax implications

The tax treatment of your shares depends on how long you hold them before selling. Depending on this time period, the sale (known as the "disposition") will be classified as either qualified or disqualified:

Qualified disposition: The sale of ESPP shares after one year of the purchase date and after two years of the grant date (offering date). Qualified dispositions have a more favorable tax benefit.
Disqualified disposition: The sale of ESPP shares within one year of the purchase date or within two years of the grant date (offering date).

Note: This section refers to U.S. taxation. International tax filers may have different obligations. Learn how taxation works in your country with our Global Tax Guide, which you can access while logged into the Equity Award Center.

Cost basis and tax forms²

When filing your taxes, it's important to be mindful of the cost basis you report. Cost basis is the fair market value your company assigned to the shares at vesting. Using the correct cost basis ensures that you file correctly and aren't taxed more than the required amount. Refer to this cost basis sheet to help you determine the cost basis on your stock plan transactions so you can file your taxes accurately.

Tax Forms

Those who sold shares will receive IRS Form 1099-B (U.S. only).

Those who purchased shares will also receive the IRS Form 3922 (U.S. only).

Common questions about ESPPs

Can I make changes to my ESPP contribution rate?

Yes. Changes are usually permitted and can be made during open enrollment periods. Check your plan for specifics.

How do I sell my ESPP shares?

Log in to your Schwab One^® brokerage account and choose "Equity Awards" from the navigation bar on the Accounts page. From there, you can select the green Trade button in the upper-right corner or "Sell Shares" in the righthand menu (both will take you to the same destination). Enter your order, identifying how many shares from each lot, order type, and timing of the order. Your company may have specific guidelines around when you can sell your shares. Review your company's trading policy for more information.

My plan has a blackout window. What does that mean?

A blackout window is a period of time (typically ahead of earnings season) during which you are prohibited from trading company stock (to prevent the appearance of insider trading). Your blackout window(s) will be listed in the award agreement provided by your employer.

Will I be able to make additional contributions outside of payroll?

No. Your contributions can be made through payroll deduction only.

How do I stop participating in the ESPP?

Log in to your Schwab One^® brokerage account and choose "Equity Awards" from the navigation bar on the Accounts page. Select "Manage ESPP" in the right column. From there, you'll be able to make changes to your election.

Have more questions about your employee stock purchase plan? We're available 24 hours a day, Monday through Friday.

Call 800-654-2593.

If outside the U.S.,
call 602-355-3408.
Log in to your account.

Head to the Equity Awards tab, and select the chat icon to be connected directly to a Stock Plan Services Specialist.

Or visit Videos and Forms for more information.

Employee Stock Purchase Plans (ESPPs)

ESPP: What is it

ESPP: What is it

ESPP

ESPP: How to enroll

ESPP: How to enroll

Enrolling in an ESPP

ESPP: How are you taxed

ESPP: How are you taxed

ESPP tax implications

Cost basis and tax forms²

Tax Forms

Tax Forms

Common questions about ESPPs

Can I make changes to my ESPP contribution rate?

How do I sell my ESPP shares?

My plan has a blackout window. What does that mean?

Will I be able to make additional contributions outside of payroll?

How do I stop participating in the ESPP?

Have more questions about your employee stock purchase plan? We're available 24 hours a day, Monday through Friday.

Call 800-654-2593.

Log in to your account.