Expanded Tax Credits for Employee Stock Ownership Plans and Coops Available in Washington

Employee ownership, and more specifically employee stock ownership plans (ESOPs), continues to garner strong bipartisan support throughout the country. Recently, the state legislature of Washington enacted laws that expand tax incentives to encourage employee ownership.

The Washington state legislature passed S.B. 5096, a state-wide initiative aimed at expanding employee ownership. The bill establishes a feasibility assessment and implementation tax credit for ESOPs, worker coops, and EOTs of up to 50% of the first $100,000 for ESOPs and $25,000 for worker coops and EOTs. The total amount of credits available is capped at $2 million per year.

VSH Insight
The Washington bill expands the message of employee ownership, drive further collaboration between employee-owned organizations, and inspire politicians from both sides of the aisle to continue to support employee ownership.

  • In employee cooperatives (coops), the business is owned equally and entirely by the participating employees. Members of the cooperative typically vote on all major decisions, elect the board of directors, and often serve on the board. Each member of the cooperative has one vote.
  • A reason coops are suited to smaller firms is that this form of ownership can be set up and administered at a reasonable cost, while ESOPs have higher costs associated. A company’s annual revenue can also be less than $1 million.
  • ESOPs are ideally better for large businesses. A minimum of 40 or more employees per business and an annual revenue of $2-4 million is needed.
  • Businesses interested in ESOPs would need 5 years of good financial standing and profitability.
  • An alternative may be a workers coops, where businesses only need 10 or more employees.

Please feel free to reach out to your VSH advisor to learn more and see what would be the best fit for your business. We are proud to offer business valuation and transition planning services.

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