Thank you for your question. ESOP are taxed upon an employee taking distributions. Distributions taken by the employees under age 59½ are considered early withdrawals and would be subject to IRS mandated taxes, along with an early penalty tax of 10%. Typically the vested balance in your ESOP can only be cashed if you retire, end employment, become disabled or die. If you want to avoid the tax and penalty, you must transfer/rollover the money from your ESOP shares into another retirement account such as a traditional IRA and once your are 59 1/2 avoid the penalty.
However, the distributions of dividends from employer stock held inside an ESOP are not subject to the early distribution 10% penalty tax, no matter when you receive the dividend.
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