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Stripe faces $3.5B tax bill as employees' shares expire

bloomberg.com

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Re: Stripe faces $3.5B tax bill as employees' shares expire

#81

Post by mike_d »

paxys wrote: post #47

The article title is mixing up two different problems, and I think that's what is causing all the confusion in this thread. 1. Stripe has to pay $3.5B in taxes. This is unrelated to employee stock. 2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill. To solve both 1 & 2 Strips is doing an additional raise of $2.3B from private investors which will (1) gi…

Stripe is saying that the taxes are not for normal business operations, so I believe in this case #1 is actually related to problem #2.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#82

Post by [deleted] »

abhv wrote: post #79
gkoberger wrote: post #67

Earlier quoted context omitted.

Do you have a source on this? Nothing I could find is within an order of magnitude of your number. Two weeks ago, Bloomberg said they process $1T in payment volume and expect to turn a profit this year. https://www.bloomberg.com/news/articles/2023-02-16/stripe-is...

Stripe charges 2.9% + 30c per transaction. From that, about 1.3% + 5c per tx go to interchange + assessment fees. This leaves about 1.6% + 25c for the payment processor. 14.3 on 816b is about 1.7% which is consistent. On 1T, that means about 17b in revenue. Lets assume they have 7000 employees (i've seen 6000-8000 in searches). As rough estimates, these SFO-based SWEs + knowledge workers cost 1m/yr on average (which…

[deleted]

Re: Stripe faces $3.5B tax bill as employees' shares expire

#83

Post by ztratar »

CodeWriter23 wrote: post #54

> Throughout the fundraising, Stripe has been adamant with investors that it doesn’t need the cash to fund normal business operations. Covering tax liabilities apparently is not part of "normal business operations" at Stripe.

Tax liabilities on (optional) employee secondary stock sales is most certainly not a normal business operation.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#84

Post by hackernewds »

mike_d wrote: post #81
paxys wrote: post #47

The article title is mixing up two different problems, and I think that's what is causing all the confusion in this thread. 1. Stripe has to pay $3.5B in taxes. This is unrelated to employee stock. 2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill. To solve both 1 & 2 Strips is doing an additional raise of $2.3B from private investors which will (1) gi…

Stripe is saying that the taxes are not for normal business operations, so I believe in this case #1 is actually related to problem #2.

yes, also Stripe will need to offer employees some relief (buying them out due to lack of liquid mkt mostly) which compounds to their expenses for the tax bill

Re: Stripe faces $3.5B tax bill as employees' shares expire

#85

Post by BooneJS »

lumost wrote: post #52
Blackthorn wrote: post #33

Earlier quoted context omitted.

Holy shit. Can't believe that didn't make it to HN. You really should price startup equity compensation at zero. Even if the startup becomes successful.

IMO this is one of the main drivers of big tech in recent years. Folks stopped viewing startups as a lottery ticket a few years ago.

They’re lottery tickets for founders only. Everyone else worse really hard for substandard income and gains valuable experience.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#86

Post by choppaface »

noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

Some start-ups will both help employees exercise 83b as well as even bonus them the amount to cover the strike. Then if an employee leaves, the non-vested shares are clawed back and the bonus is not returned.

If Stripe did this, wouldn’t they have avoided much of the tax issues here? It seems they’re only able to raise in this case because of their strong valuation and success. Like, most companies either could not do this, or would only do it for the founders.

Moreover, what about performance-based comp for employees instead of time-vested ISOs? For example, employee gets percentage X at different valuation targets where these is liquidity? The ISO basically prohibits employees from having shareholder voting power where they work. Perf-based comp could perhaps offer employees the same fraction of a percent of any windfall while simplifying the tax / equity risks, which are very outsized for employees who are not accredited investors.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#87

Post by choppaface »

throw3823423 wrote: post #48
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

At Uber, employees got loans to cover exercise. Is that not happening here?

Re: Stripe faces $3.5B tax bill as employees' shares expire

#88

Post by dataflow »

noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

> guessing Stripe has a blocking right on stock transfers

Often there's right of first refusal, but blocking rights? Do they actually have that? Is this common? If so, (why) would they need right of first refusal?

Re: Stripe faces $3.5B tax bill as employees' shares expire

#89

Post by nrmitchi »

choppaface wrote: post #87
throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

At Uber, employees got loans to cover exercise. Is that not happening here?

Taking out 7-8 figure loans to exercise start-up options in a private company in a time of decreasing valuations and market uncertainty sounds like a pretty poor idea.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#90

Post by xyzzyz »

valzam wrote: post #74
KptMarchewa wrote: post #72

Earlier quoted context omitted.

I don't understand why there's tax on unrealized gains there.

The gains are realised, you just aren't getting cash but company stock. The 'gain' is the difference between option strike price and market value of the shares. Since stripe is privat the market value is a bit murky but that doesn't deter the IRS. EDIT: spelling

No, this is completely incorrect. The issue in question is about stock options, not stocks themselves. If you hold actual stocks, there is no tax bill until you sell these to realize the gains, and you can hold these forever. Instead, the issue at hand is about stock options. For those, the tax bill is due on exercise. For as long as you can hold the options without exercising, you don’t owe any tax, but the problem here is that you cannot have options that do not expire or have expiration date longer than 10 years. As this deadline is getting closer, option holders need to choose between exercising (and owing taxes on resulting difference between strike price and FMV), and forfeiting the options.
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