Empowering Employees through Stock Ownership Act

Empowering Employees through Stock Ownership Act

This bill amends the Internal Revenue Code to allow an employee to elect to defer, for income tax purposes, income attributable to certain stock transferred to the employee by an employer.

The employee may defer the inclusion of income from the stock until the year that includes the earliest of the dates on which:

• the stock becomes transferable;
• the employee becomes an excluded employee;
• stock of the corporation becomes readily tradable on an established securities market;
• seven years have passed after the rights of the employee in the stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier; or
• the employee revokes the election with respect to the stock.

The stock must meet specified requirements and be transferred to the employee from an eligible corporation in connection with the performance of services as an employee.

A corporation is eligible if: (1) no stock of the corporation or a predecessor is readily tradable on an established securities market during any preceding year; and (2) it has a written plan under which at least 80% of certain employees are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock.

Employees are excluded if they: (1) are a 1% owner, the chief executive officer, or the chief financial officer of the corporation or have been at any time during the 10 preceding calendar years; (2) are a family member of the specified individuals; or (3) have been one of the four highest compensated officers of the corporation during any of the 10 preceding taxable years.

Written by the nonpartisan Congressional Research Service. All summary versions on Congress.gov