Yes, you can buy stock in a company you work for. If your employer is publicly traded, you can purchase shares either through a company-sponsored employee stock purchase plan or on the open market through any personal brokerage account. Federal securities laws don’t stop employees from owning their employer’s stock. They do restrict when you can trade based on what you know about the business, and they shape how those purchases are taxed.
When You’re Allowed to Trade
The biggest legal limit on buying your employer’s stock is the prohibition on trading while you possess material nonpublic information. SEC Rule 10b-5 makes it illegal to use any deceptive practice in connection with buying or selling securities, and courts have long read that rule to bar trading on inside information.1eCFR. 17 CFR 240.10b-5 – Employment of Manipulative and Deceptive Devices “Material” means anything a reasonable investor would consider important: upcoming earnings, a pending merger, a major contract win or loss, significant litigation.
To keep employees on the right side of this rule, most public companies set designated trading windows. These are periods when employees are allowed to buy or sell company stock, and they typically open a day or two after the company files its quarterly earnings report and close several weeks before the next quarter ends. Outside those windows, employees face blackout periods when all trades are off-limits. Your company’s compliance or legal department will notify you when windows open and close.
Many employers also require you to get pre-clearance from a compliance officer before any trade, even during an open window. This applies to rank-and-file employees at some companies, not just executives. Skipping the pre-clearance step can trigger discipline even if the trade itself was legally fine.
What Happens If You Trade on Inside Information
The penalties reach every employee, not just executives. On the civil side, the SEC can seek penalties of up to three times the profit you gained or the loss you avoided by trading on the information.2Office of the Law Revision Counsel. 15 USC 78u-1 – Civil Penalties for Insider Trading Criminal exposure runs up to $5 million in fines and up to 20 years in prison for individuals.3GovInfo. 15 USC 78ff – Penalties
Buying Through an Employee Stock Purchase Plan
Many public companies offer an employee stock purchase plan (ESPP). A tax-qualified ESPP under Section 423 of the Internal Revenue Code lets you buy company stock at a discount through automatic payroll deductions. The maximum discount is 15 percent: the purchase price can’t be less than 85 percent of fair market value on either the grant date or the purchase date.4Internal Revenue Service. Internal Revenue Bulletin 2009-49
Federal tax law caps ESPP purchases at $25,000 in fair market value per calendar year, measured using the stock price on the grant date (the first day of the offering period) rather than the price you actually pay.4Internal Revenue Service. Internal Revenue Bulletin 2009-49 Contributions above that limit are typically refunded.
How Enrollment and Purchases Work
You enroll during a designated enrollment window through your company’s internal portal or a third-party brokerage platform. You choose what percentage of each paycheck to contribute. Most plans allow up to 15 percent of your compensation, though the exact range is set by each employer rather than by federal law. Your employer withholds that amount from each paycheck and holds it until the purchase date.
On the purchase date, the plan uses your accumulated contributions to buy shares at the discounted price. Many plans include a lookback provision, which calculates the discount using whichever stock price is lower: the price on the first day of the offering period or the price on the purchase date. If the stock rose during the offering period, you get the discount applied to the lower starting price. The purchase happens automatically; you don’t need to place a trade.
Each ESPP cycle runs for a defined offering period, the window during which your payroll deductions accumulate before shares are bought. Many companies use six-month or twelve-month offering periods, though the law allows up to 27 months. Miss an enrollment deadline and you wait until the next offering period, which could be months away. The plan prospectus, available from HR or benefits, spells out the specific dates.
How ESPP Shares Are Taxed
The tax treatment depends on how long you hold the shares. For the more favorable outcome (a qualifying disposition), you have to hold the shares at least one year after the purchase date and at least two years after the grant date.5Internal Revenue Service. Stocks (Options, Splits, Traders) 5 Both holding periods must be met.
When you meet both, you report the lesser of two amounts as ordinary income: the discount you received at purchase, or the difference between the sale price and the price you paid. Any remaining profit is taxed at the lower long-term capital gains rate.5Internal Revenue Service. Stocks (Options, Splits, Traders) 5
Sell before hitting both dates and it’s a disqualifying disposition. The full spread between the fair market value on the purchase date and the price you paid is taxed as ordinary income, regardless of what you sold the stock for. Any additional gain above that amount is a capital gain, and any loss below your purchase price is a capital loss.5Internal Revenue Service. Stocks (Options, Splits, Traders) 5 Selling early can significantly raise your tax bill.
Buying on the Open Market
If your employer doesn’t offer an ESPP, or you want to buy more shares than the plan allows, you can purchase stock through any personal brokerage account. You buy at the current market price with after-tax dollars, so there’s no employer discount. Many brokerages now charge zero commissions for stock trades, though some still charge a per-trade fee.
Before placing a trade, check your company’s insider trading policy for the pre-clearance and trading-window rules. The same blackout periods that apply to ESPP-related activity typically apply to open-market purchases.
Setting Up a 10b5-1 Trading Plan
If you want to buy or sell company stock on a regular schedule without worrying about blackout periods, you can adopt a Rule 10b5-1 trading plan. This is a written plan you put in place when you don’t possess any inside information, specifying in advance the dates, amounts, and prices at which trades will occur. Because the plan takes discretion away from you at the time of each trade, it provides a legal safe harbor against insider trading claims.
Under amendments the SEC finalized in 2023, directors and officers must observe a cooling-off period of at least 90 days (and up to 120 days) after adopting or modifying a plan before any trading can begin. Other employees face a 30-day cooling-off period.6SEC. Rule 10b5-1 Insider Trading Arrangements and Related Disclosures – Fact Sheet The plan must also include a certification that you aren’t aware of any material nonpublic information at the time you set it up.
Watch the Wash Sale Rule
Sell company shares at a loss and repurchase substantially identical shares within 30 days before or after the sale, and the IRS disallows the loss deduction under the wash sale rule.7Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed loss isn’t gone. It gets added to the cost basis of the replacement shares, deferring the tax benefit until you sell those.
This creates a trap for ESPP participants. If you sell company stock at a loss and your ESPP automatically buys new shares within that 61-day window (30 days before through 30 days after the sale), the automatic purchase counts as a repurchase and triggers a wash sale.7Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities Dividend reinvestment plans can trigger it too. If you plan to sell at a loss, check the timing against your next ESPP purchase date.
Extra Rules for Officers, Directors, and 10 Percent Owners
If you’re an officer, director, or someone who owns more than 10 percent of any class of the company’s equity, Section 16 of the Securities Exchange Act adds public reporting obligations and a short-swing profit rule. Insiders must file Form 3 within 10 days of becoming an insider, Form 4 within two business days of any purchase or sale, and Form 5 within 45 days after the fiscal year end for any transactions that weren’t reported earlier.8Office of the Law Revision Counsel. 15 USC 78p – Directors, Officers, and Principal Stockholders Filings are public on the SEC’s EDGAR system.
Section 16(b) also lets the company recover any profit from a buy-and-sell (or sell-and-buy) pair of trades that occur within any six-month period, whether or not you had inside information.8Office of the Law Revision Counsel. 15 USC 78p – Directors, Officers, and Principal Stockholders Courts match the most favorable buy-sell combinations within the window, which can produce a recoverable profit even if you lost money overall. If you’re covered by Section 16 and plan to buy, plan to hold at least six months. These rules don’t reach ordinary employees.
Don’t Concentrate Too Much in One Stock
When you work for a company and own its stock, your paycheck and your investment portfolio are tied to the same business. A rough patch for the company can mean a pay cut or layoff at the same moment your holdings drop. Financial advisors generally recommend limiting the percentage of your total portfolio held in any single stock, including your employer’s. Taking the ESPP discount is often worthwhile; periodically selling some shares and moving the proceeds into other investments keeps one company from carrying too much of your financial life.