Don’t Tax Options and RSUs Upon Vesting
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Re: Don’t Tax Options and RSUs Upon Vesting
#2Worth mentioning that replacing equity compensation with cash would likely be better for employees of all but the most successful companies.
Re: Don’t Tax Options and RSUs Upon Vesting
#3[deleted]
Re: Don’t Tax Options and RSUs Upon Vesting
#4So we need to split this issue between companies that are public (or otherwise have liquid equity) and those that don't.
For the big companies it's pretty easy. They're largely RSU based. Shares are vested/released. Many companies allow full autosale. Easy. Even in the case of selling enough shares to cover withholding your still left with something very liquid.
Options in public companies are in basically the same boat.
The tricky one is early stages startups.
If you have options that have an exercise price at or over market value then you can take a Rule 83(b) election to defer your entire tax liability til exercise.
If the exercise price is below market then that would mean paying tax on the entire grant even though you may never receive it. Easier option for founders than employees.
Either way it doesn't cover grants along the way.
I do think it's a reasonable complaint to get taxed on something you can't liquidate.
So two things jump out at me:
1. Issuing RSUs in a non-public company send like a bad idea. Does anyone actually do this?
2. The vast majority of tax revenue would come from FAMGA shares which are already taxed so what's actually going to be gained by this? Or is executive compensation (ie ISOs) able to get favorable treatment already? This reason sooner makes it seem like a bad idea.
EDIT: an answer to my own question (emphasis added):
https://www.recode.net/2017/11/12/16640530/uber-peace-deal-r...
> Under terms of the deal agreed on, those eligible employees with stock options are capped at selling half their holdings (and those with restricted stock units cannot sell in this round).
So apparently some Uber employees have RSUs and Uber obiously public or liquid.
Re: Don’t Tax Options and RSUs Upon Vesting
#5So we need to split this issue between companies that are public (or otherwise have liquid equity) and those that don't. For the big companies it's pretty easy. They're largely RSU based. Shares are vested/released. Many companies allow full autosale. Easy. Even in the case of selling enough shares to cover withholding your still left with something very liquid. Options in public companies are in basically the same b…
> I do think it's a reasonable complaint to get taxed on something you can't liquidate.
One way to sidestep this would be to force the taxing authority to take some of the options as payment, rather than cash. You've been granted 100 options at a value of $x each and the tax rate is 20%? Just give them 20 options. That way it doesn't matter what x is or whether the market is liquid!
Re: Don’t Tax Options and RSUs Upon Vesting
#6Can someone explain how the taxable amount would be calculated if the company isn't listed on the stock market. My options are for value x per share. I would expect to pay taxes for y - x with y being the market value. How does the actual market value get established? Will that number just come from what was used when someone invested previously?
Re: Don’t Tax Options and RSUs Upon Vesting
#7"But, sadly, I don’t think this is really about what makes sense. It is about politics."
Clearly this proposal is targeted directly at private SV and tech companies.
And the mortgage deduction and state tax write off proposals are targeted at California / NY.
Outside of just a big FU from the Republicans to largely Democratic states what is the end game?
E.g. - what are the Republicans actually negotiating for, assuming points like the RSUs are proposed as leverage vs real reform?
Re: Don’t Tax Options and RSUs Upon Vesting
#8So we need to split this issue between companies that are public (or otherwise have liquid equity) and those that don't. For the big companies it's pretty easy. They're largely RSU based. Shares are vested/released. Many companies allow full autosale. Easy. Even in the case of selling enough shares to cover withholding your still left with something very liquid. Options in public companies are in basically the same b…
> I do think it's a reasonable complaint to get taxed on something you can't liquidate. One way to sidestep this would be to force the taxing authority to take some of the options as payment, rather than cash. You've been granted 100 options at a value of $x each and the tax rate is 20%? Just give them 20 options. That way it doesn't matter what x is or whether the market is liquid!
This is the perfect solution if they really want to tax illiquid assets.
Re: Don’t Tax Options and RSUs Upon Vesting
#9> That should be a clear enough example to the lawmakers that vesting should not be a taxable event.
Vesting has the unique property that before it occurs the shares are not yours and after it occurs, they clearly are (and can't be clawed back).
If you don't tax vesting, are you going to instead wait until the shares are sold to tax them? That would be very easy to abuse.
> If this provision becomes law, startup and growth tech companies will not be able to offer equity compensation to their employees.
Nothing stops you from offering it. It's up to the potential employee to accept it, weighing the possible tax liability.
> We will see equity compensation replaced with cash compensation and the ability to share in the wealth creation at your employer will be taken away.
In the vast majority of cases startup equity isn't worth the paper it's printed on. Paying their employee bonuses with cash would be a net win for their employees. The "losers" in this situation are established companies that arguably are already in a good position to pay out bonuses in cash (or at least include a cash component to cover taxes).
> This has profound implications for those who work in tech companies and equally profound implications for the competitiveness of the US tech sector.
I really doubt that. The talent pool, networks, and legal infrastructure in the USA are second to none. That's not going to suddenly shift because of minute changes to tax law.
Re: Don’t Tax Options and RSUs Upon Vesting
#10So we need to split this issue between companies that are public (or otherwise have liquid equity) and those that don't. For the big companies it's pretty easy. They're largely RSU based. Shares are vested/released. Many companies allow full autosale. Easy. Even in the case of selling enough shares to cover withholding your still left with something very liquid. Options in public companies are in basically the same b…
isn't this already a problem for RSU's, where you get taxed at vest time (or on the value at vest time)? Are there startups out there granting illiquid RSU's? seems like a bad fit.