Stock Plan Services FAQs: 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.

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.

• 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.

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.

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.

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.

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.

This is a company-determined date after the offering period when your company uses the money you have contributed to buy company stock.

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^®.

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.

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.

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.

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.

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:

1. At least one year from the purchase date.
2. 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.

If you have any general questions about the ESPP or the enrollment process, call Fidelity Stock Plan Services at 800-544-9354.