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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
#182I'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?
First of all, the issue here is with options, not RSUs.
The reason employees of early stage companies don’t take 83b elections for RSUs or exercise their options early is because that dramatically ups the risk: they have to front the money for exercise (strike price * number of options) or pay the tax bill on the RSUs as income.
If the company then goes belly up, the IRS doesn’t give the money back, so the employee is out of a job and also that money.
It makes sense to buy in like that if and only if the person is otherwise rich and diversified enough that choosing to make the equivalent of a speculative seed investment (and usually dead lost in terms of liquidation preference) would be reasonable for their overall portfolio. That financial situation is not a common one among early startup employees.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#183Earlier quoted context omitted.
the biggest joy is that you get it back in the form of a credit over several years, all the while paying interest and fees on the tax bill you cant initially pay because your "gains" are in a private company's stock that you cant sell! I've yet to get a rational explanation of why the current AMT law is fair. sure for some people it makes sense, but for the exercise of ISOs in a private company, it's basically robber…
It’s fair because otherwise you could compensate people for zero tax. For example, you have a CEO that can either be paid: 1) $1m in cash 2) $1m in stock 3) an option grant to buy 1m shares at $0.000001. Each share has a FMV of $1. Without AMT, you could always take (3) and they would get $1m of stock for $1. Tax free.
Doesn't the option have to match the FMV at the time of issuance? E.g. Option 3 would be Option Grant at FMV of $1 with that constraint
Re: Stripe faces $3.5B tax bill as employees' shares expire
#184Earlier quoted context omitted.
Yes for sure it's a raw deal for the employees, but I think Stripe is planning to enable a secondary market? In any case, we are all adults, they accepted stock options as part of your renumeration. If they don't know the risks then don't work at a private company that offers stock options. EDIT: That being said, I think it would be reasonable to contemplate regulations that prevent private companies from blocking se…
To be fair, a venture-backed company remaining private for 10 years wasn't terribly common and probably wouldn't factor highly in anyone's risk assessment. If someone asked "what happens to these options in 10 years if you don't go public or get acquired?" they'd likely be ridiculed for being difficult. And I don't think start-ups want that to become the new mentality or they'll get more push-back on comp structure.
> If someone asked "what happens to these options in 10 years if you don't go public or get acquired?" they'd likely be ridiculed for being difficult.
Let's hit the presses: tech startups hate engineers that think of edge cases
Re: Stripe faces $3.5B tax bill as employees' shares expire
#185Earlier quoted context omitted.
I don't think it really changes the overall point you're making, but these would presumably be ISOs, not RSUs.
According to the story, Stripe has been compensating employees with double triggered RSUs
Typically a company starts with ISOs or similar, and then moves to RSUs when they are confident there will be an IPO or other liquidation event in the foreseeable future. In this case, Stripe did that, and only later started issuing RSUs.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#186Earlier quoted context omitted.
> of working very hard, instead of coasting I work at a FAANG, not coasting and make a lot of money and have made a lot of money every year for nearly a decade. I'll continue to make a lot of money and not worry about whether my startup will or won't succeed.
That is the definition of coasting
My reading of GP is that by working at a BigCo you remove the worry of whether your company will go under. Regardless of how hard you work.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#187Earlier quoted context omitted.
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.
You can get loans backed by the shares themselves. Ie, the lender gets x% of the shares, rather than being paid back a specific dollar amount at a later time.
Right, that's what banks were doing for Uber employees, for AFAIK, as low as 7-digit packages. I believe the interest was conditional on an IPO happening tho, and in some cases the IPO not only got delayed but the IPO price was actually a little below secondary market price right before the IPO (same as Facebook).
I would think banks would do this again? But perhaps with a longer IPO window? Like the banks that would do this would also likely participate in the IPO anyways ...
Re: Stripe faces $3.5B tax bill as employees' shares expire
#188Earlier quoted context omitted.
If the stock is given to you as income, you owe tax on the $$ value as though it was income. Ask anyone who works at Google or any of the big corps who give RSUs. The number of them that hit your account is always about 2/3 of the number which actually vested. The rest are withheld as taxes.
Again, you are talking about stocks. Options work completely differently. Unlike with RSUs, you don’t owe any tax on options when they vest, only when you actually exercise. I know how RSUs works, I have actually worked at Google for a number of years. Instead, you should ask someone who works at an earlier stage company how options work.
I may be woefully misunderstanding here but say you exercise your options, sell them then get real cash for the sale all in the same day. Can you use that cash to pay your taxes when tax season comes around?
Re: Stripe faces $3.5B tax bill as employees' shares expire
#189Earlier quoted context omitted.
Again, you are talking about stocks. Options work completely differently. Unlike with RSUs, you don’t owe any tax on options when they vest, only when you actually exercise. I know how RSUs works, I have actually worked at Google for a number of years. Instead, you should ask someone who works at an earlier stage company how options work.
I may be woefully misunderstanding here but say you exercise your options, sell them then get real cash for the sale all in the same day. Can you use that cash to pay your taxes when tax season comes around?
You can use whatever cash you have to pay your taxes.
Re: Stripe faces $3.5B tax bill as employees' shares expire
#190Earlier quoted context omitted.
Why do people act like the tax's is greater than the cash flow, like it's some unthinkable crime to pay tax.
Because in this case they're going to be taxed on money they can't, and possibly won't ever, be able to access. It's like being required to pay tax on lottery winnings before you get a chance to enter the lottery.
Why is that even treated as income then? That's like the government asking for more taxes from me because I have the potential to make money in the future if I'm lucky.