Anyone know exactly what "Performance Units" are, and if they would fall under this?
Don’t Tax Options and RSUs Upon Vesting
31–40 of 388 posts
Re: Don’t Tax Options and RSUs Upon Vesting
#32So 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!
But who would manage this federal portfolio?
Re: Don’t Tax Options and RSUs Upon Vesting
#33"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, assum…
> Outside of just a big FU from the Republicans to largely Democratic states what is the end game?
I would bet that this is the end game. The entire tax plan seems targeted at "blue states," which already pay more Federal taxes per capita than "red states" when adjusted for Federal inflows.
At some point people will start asking: "why should we remain part of the USA? What do we get from Washington?"
I would not be surprised if the USA were to fragment by mid-century. The level of regional polarization we have today is unprecedented since perhaps the civil war.
Edit: I have a friend who's a little bit conspiracy inclined who thinks there's an agenda to fragment the USA. I find it hard to totally dismiss this notion given how politics is being played. There is definitely a far-right agenda to fragment the EU, so it's not an absurd notion.
Re: Don’t Tax Options and RSUs Upon Vesting
#34The importance of this change can’t be understated; this effectively kills compensation at startups in the form of equity, and would make startups completely unable to compete with incumbents. Anyone that has options at a company that grows quickly would be paying tens or hundreds of thousands in taxes to keep their equity, which is still effectively a very risky bet that a company will end up huge. No one would want…
While this is an unintended consequence, how do you otherwise tax the massive equity compensation packages offered to executives? It has to be across the board.
It's already taxed whenever they exercise.
Re: Don’t Tax Options and RSUs Upon Vesting
#35My RSUs have always been taxed on vest -- what am I missing?
Re: Don’t Tax Options and RSUs Upon Vesting
#36I don’t quite follow how this is different. When I got rsu’s at my former company they sold a bunch at every vest date to pay for taxes. Isn’t that the same as what they’re talking about here?
Re: Don’t Tax Options and RSUs Upon Vesting
#37> 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…
There's so much inaccuracy in your comment that I feel needs to be addressed.
> 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).
That's not correct. You're vesting 'options' i.e. the option to purchase shares at a certain price. Not shares. Even once you buy the options they are not easily liquidated.
> Nothing stops you from offering it. It's up to the potential employee to accept it, weighing the possible tax liability.
If it makes zero financial sense to anyone why would you offer it?
> 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).
No, the losers in this situation are early stage startups, and employees who want to work at those companies and get rewarded in the potential upside. At an early stage startup there is no 'cash' to pay bonuses. Even if there was cash, equity comp is incredibly more valuable in a company that sees any kind of success. Clearly you're bearish on equity based comp, so be it, but it has been my experience that equity is the primary avenue people see any financial success in tech.
If any semblance of this gets passed into law, and it effects ISOs, I think it'll be the end of Silicon Valley as we know it.
Re: Don’t Tax Options and RSUs Upon Vesting
#38Earlier quoted context omitted.
That’s the point of options though - most of the time that “cash” doesn’t exist to be paid out in bonuses. Options are a bet that it will exist in the future. Why do startups pay lower salaries than Facebook? Because Facebook throws around $200-300k salaries and doesn’t care. Startups can’t do that, so it promises a piece of the pie if the company becomes big and successful instead.
I don't think this is true anymore. I think this is one of those funny vestigial things that evolved in a different era. If you think of a startup as a true "garage venture" with a few people toiling away trying to ship a product, maybe that's the right model. That isn't really the model for SV entrepreneurship anymore, though, even though we kinda pretend it is. How it works today is, $8 million-dollar "seed" rounds…
Silicon Valley isn't the world. I think the reality is that a startup is often the "garage venture" or somewhere well below a well-funded startup. Most startups of the world don't have multi-million dollar seed funding, even many that do aren't paying 150k plus salaries.
Re: Don’t Tax Options and RSUs Upon Vesting
#39This is pretty awful. It would kill the ability for startups to compete with large companies for top talent. There is no way startups can afford the salaries that Google, Facebook, etc. can offer.
It would also break the machine that mints new angel investors. A huge percentage of angel investors are people who got rich off options/stocks in growth companies.
This really seems explicitly anti-entrepreneurship and pro incumbent mega-corp.
Of course it also might have another (possibly unintended and not all bad) side effect: to drive startups out of Silicon Valley and other high salary high cost of living enclaves. A startup can offer very competitive salaries in many other places. Put a startup in Ohio or Michigan and $80-$100k can get you the best talent available on the local market... especially if you also offer much more interesting problems to work on than the enterprise salt mines that tend to dominate IT employment in those places.
Re: Don’t Tax Options and RSUs Upon Vesting
#40The importance of this change can’t be understated; this effectively kills compensation at startups in the form of equity, and would make startups completely unable to compete with incumbents. Anyone that has options at a company that grows quickly would be paying tens or hundreds of thousands in taxes to keep their equity, which is still effectively a very risky bet that a company will end up huge. No one would want…
I think the way to look at this is as yet another attempt by dying but deep-pocketed industries to buy themselves a few more years of oxygen whilst their executives either retire and GTFO or they desperately pivot to the scary new age of Tech and AI that is already upon us.
IMO it's not partisan, it's just business.
further, this already happened once with AMT and Dotcom 1.0, leaving a bunch of rank and files with huge tax bills for profits they never actually reaped.