Employee Profit Sharing Plans (EPSPs)
An EPSP lets you shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition in the profitsProfits A financial gain for a person or company. Equals the money left over after you subtract your costs from the money you made.+ read full definition of the company you work for. Your employer is required to make contributions to the EPSP according to a formula based on its profits.
3 things to know about EPSPs
- EPSP contributions are allocated to employees each year. You may also be allowed to make contributions.
- An EPSP is not a registered plan. Your contributions are made from your after-taxAfter-tax The money you have left after you pay taxes on money that you made working or investing.+ read full definition earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition. You must pay taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition on employer contributions allocated to you each year, and on any investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition earnings these allocations earn.
- Some employers let you choose each year between having your EPSP allocation paid out to you or having it remain in the EPSP accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition.
Your employer contributes to your EPSP, but the contributions and earnings are taxable to you.