Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

NCEO employee ownership FAQ hero (keyboard)

Are S corporation distributions passed through to employees in an S corporation ESOP subject to the 10% excise tax on "early distributions"?

They may be subject to the tax unless the distribution qualifies for one of the exceptions contained in section 72(t)(2) of the Internal Revenue Code or qualifies, under the principles of section 402(c)(4) of the Code, as an "eligible rollover distribution.

For details on S Corporation ESOPs, see our book S Corporation ESOPs

Link to this FAQ Topic: S Corporation ESOPs