An ESOP, Employee Stock Option Plan, is a type of benefits plan that provides employees with company stock based on annual earnings. Employees are able to get up to 25% of annual income in ESOP stock. If you have an ESOP plan and leave the company for whatever reason, you are able to liquidate your ESOP stock. ESOP distributions are not considered retirement plan distributions with penalties on early distributions, but they are fully taxable as income.
Things You'll Need
- ESOP statement
Call the administrator for the ESOP plan listed on the annual statement. Request any paperwork needed to liquidate the stock in your name in the ESOP trust.
Obtain a fair market value of the stock price. Publicly traded companies will be listed on stock market research websites such as Yahoo Finance and MSN Money. A privately held company may need to be evaluated by a tax or legal adviser if there are any questions about the value of the stock.
Fill out the forms obtained from the administrator and submit. There are no withholding requirements on ESOP plans, but you may ask if there is an option of withholding to reduce your tax liabilities when you file your taxes. The stock will be liquidated, and a check will be sent to you within a week of receipt.
Obtain the 1099 for the ESOP liquidation and file Form 1040, listing the distribution on Line 15.
Tips & Warnings
- You do not need to liquidate the stock all at once. You can liquidate the stock over several years to reduce the tax liability in any one year.
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