Stripe faces $3.5B tax bill as employees' shares expire
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Re: Stripe faces $3.5B tax bill as employees' shares expire
#2Re: Stripe faces $3.5B tax bill as employees' shares expire
#3I'm not following why there is a tax bill.
If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest.
If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised.
What am I missing?
Re: Stripe faces $3.5B tax bill as employees' shares expire
#4I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless.
And since these are the company’s early employees, I imagine that Stripe is doing this to try and ensure they retain them.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#5I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
Very few people are in a position to pay for all their shares upon accepting a job. Which an 83b election entails.
Change my view.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#6I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless. And since these are the company’s early employees, I imagine that Stripe is doi…
If they were the earliest employees the stock should have been at par value, making the tax payment minimal.
Later employees typically get options, which don't have the tax issue.
So I'm still unclear where the tax bill is coming from.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#7I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless. And since these are the company’s early employees, I imagine that Stripe is doi…
Shouldn't the strike of the options make them worthless at grant time? I was under the impression that the 83b election is awesome because it basically gives you tax free grants.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#8I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
If you do an 83b election on RSUs, you'd recognize the entire present value of the RSU grant as income in that year, and pay taxes on it. I believe you're then limited to claiming capital losses on that if you leave before it all vests, or it all ends up worthless.
Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election. The whole point of RSUs is that you don't owe anything until there is a liquidity event, unlike options which you may be required to exercise or lose while the company is still private.
However, RSUs only get this favorable treated (i.e. you've been given something of value, but can defer paying taxes on it) because they technically expire worthless if the company does not have a liquidity event in time. Thus far no successful tech company (that I know of) has screwed over its employees by casually choosing not to have a liquidity event and letting years worth of RSUs grants all expire worthless.
Stripe is trying to arrange liquidity for its employees who were granted RSUs in e.g. 2016, and that expire in 2023. Those employees have not had to pay taxes as the RSUs vested, but will have a large tax bill if those RSUs do anything other than expire worthless...
Re: Stripe faces $3.5B tax bill as employees' shares expire
#9Earlier quoted context omitted.
Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless. And since these are the company’s early employees, I imagine that Stripe is doi…
If they were the earliest employees the stock should have been at par value, making the tax payment minimal. Later employees typically get options, which don't have the tax issue. So I'm still unclear where the tax bill is coming from.
Because they didn’t get options. Stripe was flirting with going public for so long that they gave RSUs and people were trading the shares on private secondary markets.
Those secondary markets have dried up in the general macroeconomic environment, so now this practice is leaving people with their pants down, complete illiquidity.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#10Earlier quoted context omitted.
Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless. And since these are the company’s early employees, I imagine that Stripe is doi…
If they were the earliest employees the stock should have been at par value, making the tax payment minimal. Later employees typically get options, which don't have the tax issue. So I'm still unclear where the tax bill is coming from.
I don't know why you believe later employees get options. It is true that at public companies, employees often are compensated with options, but at "startup"s where the FMV of a new employee grant would be prohibitively expensive to either early exercise or pay income taxes on, employees get RSUs.
Options are for small companies, and 83b elections when the exercise price can be paid by the employee upfront. RSU are for unicorns. Once the company is public and there is liquidity you can do whatever. Except backdating stock options...