ESPP (Employee Stock Purchase Plan).
In plain English
You set aside after-tax money from each paycheck during an offering period, and at the end the plan buys company stock for you at a discount, commonly 15%, sometimes off the lower of the start or end price (a "lookback"). The discount is the headline: buying at 85 cents on the dollar is a built-in gain at purchase. The tax treatment depends on how long you hold the shares.
01Why it matters
The discount is a guaranteed gain at purchase, which is rare; understanding the mechanics is how you capture it without overconcentrating in your employer.
02The math, step by step
You contribute $2,000 over six months. The plan buys at a 15% discount off a $40 price, so $34 per share. You receive about 58.8 shares worth $2,352 on day one. The $352 is the discount working.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
An ESPP is not a reason to hold a large position in your employer's stock. Your paycheck already depends on this company. This entry explains the mechanics, not what to do with the shares.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice