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

1. EPSP contributions are allocated to employees each year. You may also be allowed to make contributions.
2. 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.
3. 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.

Key point

Your employer contributes to your EPSP, but the contributions and earnings are taxable to you.