ESOP Accounting Treatment

Employee stock ownership plans are offered at many companies.

ESOP stands for employee stock ownership plans. Most of the time, employees buying into this program are buying the corporation's stock where they are employed.

Ownership

Employees receive company stock either by buying it directly, receiving it as a bonus or obtaining it through a profit sharing plan. Employees almost always receive company stock like this as a gift or incentive through work.

Transactions

Whenever an employee obtains company stock through an ESOP, a journal entry is recorded on the books.

Buyback

Just like any other stock, ESOP stocks are sold back to employers at the employee's discretion. The employer buys the stock back at fair market value and a journal entry is made on the books.

Tax Deductible

All contributions of stock through an ESOP are tax deductible for the employer contributing the stock. Any dividends associated with an ESOP are also tax deductible. Giving away stock reduces an employer's tax liability for the year.

References

• All Business: Employers' Accounting for Employee Stock Ownership Plans
• National Center for Employee Ownership: How an ESOP Works
• US Securities and Exchange Commission: Employee Stock Ownership Plans
• HR Guide: Compensation Incentive Plans ESOP