Tips To Navigate ESPP

This section explains the Employee Stock Purchase Plan (ESPP), a more traditional and common form of stock-based compensation compared to RSUs. ESPPs are typically found at companies outside the top-tier tech firms and offer employees a way to invest in their employer's stock at a discount.

• What ESPP Is: ESPP allows employees to purchase company stock at a discounted rate—usually 10% to 15% off the market price—using a portion of their base salary.
• How It Works: Employees allocate up to 10% of their salary into a fund, which is periodically used to buy company shares. Unlike RSUs, employees pay to acquire the shares.
• Tax Implications: The discount is considered taxable income because it's effectively a financial gain (e.g., buying $100 stock for $85 means $15 in taxable benefit).
• Differences from RSUs: RSUs grant a fixed number of shares, regardless of stock price fluctuations, while ESPP is tied to monetary investment and stock price dynamics, often using an average price over time.
• General Advice: Though the gains may be smaller and the system slightly more complex, ESPP is considered “free money” and is worth maximizing when financially feasible.