Stripe faces $3.5B tax bill as employees' shares expire • Hacker News Board

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

#301

Post by kasey_junk » Thu, Mar 09, 2023, 12:46 PM UTC

raylad wrote: post #59

yieldcrv wrote: post #9

Earlier quoted context omitted.

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.

If they didn't get options, tax would have had to be paid as each RSU vested if it was not paid with an 83b election. So again, I don't see why Stripe has a tax bill now.

RSU don’t allow an 83b. Stripe issued double trigger RSU so the tax is only due when the second trigger occurs, which hasn’t happened yet.

Some of the RSU have upcoming expiration dates as required by IRS rule. To avoid those expiration dates Stripe wants to do something. That something probably involves a big tax withholding for Stripe that must be paid in cash.

Stripe doesn’t intend to go public soon so is seeking an alternate way to come up with that cash.

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

#302

Post by blitzar » Thu, Mar 09, 2023, 12:55 PM UTC

madaxe_again wrote: post #230

nugget wrote: post #173

Earlier quoted context omitted.

Based on internal data I have from similar companies my guess would be the first 50 employees average about $15-20m each and the next 100 average about $5-10m each just from their initial 4 year grants, with a lot of variation based on team and seniority. Stripe options have probably grown about 100x in value since the Series B so if you were an engineer who joined around that time, received $100k in RSUs, and left u…

Based on personal experience and friends who have been at unicorns in their early days - the first 50 employees average about $0. The next 100 average about $0. In every case, the stock that the employees holds gets reclassified and diluted until it’s a funky employee-only stock that’s only saleable back to the company at nominal value, but the company isn’t buying. So sure, maybe there’s some kind of nominal value,…

Zuckerberg, Brin, WeWork Guy etc all first 50 employees of unicorns ... you saying that their 100's of billions are actually zero value because they are 100's of billions of funky employee-only stock that’s only saleable back to the company at nominal value?

Also why pay $3.5bn of tax on $0 of value? Given how sharp tech is about tax minimization you would think they would have better tax people.

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

#303

Post by konfusinomicon » Thu, Mar 09, 2023, 12:58 PM UTC

caseysoftware wrote: post #142

tyre wrote: post #136

Earlier quoted context omitted.

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.

With (3), they'd be taxed on the gains when they sell. Not "tax free" at all. The difference is that they wouldn't be taxed until the gains were realized not when they were imagined on paper.

exactly this. tax time will come, hopefully. until then it's a tax on monopoly money.

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

#304

Post by admissionsguy » Thu, Mar 09, 2023, 12:59 PM UTC

thomascarney wrote: post #275

messe wrote: post #246

Earlier quoted context omitted.

> You dont have free healthcare If you’re going to use that sort of reasoning, then you don’t get free anything other than air. Yes, it’s paid for by taxes (or through insurance depending on country; yes we have cheap private insurance here). Thank you for bringing that to our attention, our feeble European brains were unable to deduce that on our own.

In Germany, my wife and I pay together about ~2,000 USD per month for public health insurance. It's not cheap!

Nor is it universal: I can count at least one extended family member who is not insured and is one accident away from bankruptcy - not unlike some people in the US - except that personal bankruptcy is exceedingly difficult process in their EU country, and it would be quite doable (if not straightforward) to go to prison for the debt.

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

#305

Post by konfusinomicon » Thu, Mar 09, 2023, 1:02 PM UTC

ctchocula wrote: post #239

kelnos wrote: post #139

Earlier quoted context omitted.

So what? $1M in stock doesn't pay the rent. They'd still get taxed when they sell the shares.

Per Buy, Borrow, Die, they could take a margin loan using that $1M and use borrowed money (say $100K) to pay the rent. With enough accumulated shares, they wouldn't need to sell the shares in their lifetime. After they've passed away, they would pay off the loan and the stock gets a free step up to the appreciated cost basis.

that's assuming the stock is actually transferable though. that day could never come

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

#306

Post by jossclimb » Thu, Mar 09, 2023, 1:03 PM UTC

madaxe_again wrote: post #230

nugget wrote: post #173

Earlier quoted context omitted.

Based on internal data I have from similar companies my guess would be the first 50 employees average about $15-20m each and the next 100 average about $5-10m each just from their initial 4 year grants, with a lot of variation based on team and seniority. Stripe options have probably grown about 100x in value since the Series B so if you were an engineer who joined around that time, received $100k in RSUs, and left u…

Based on personal experience and friends who have been at unicorns in their early days - the first 50 employees average about $0. The next 100 average about $0. In every case, the stock that the employees holds gets reclassified and diluted until it’s a funky employee-only stock that’s only saleable back to the company at nominal value, but the company isn’t buying. So sure, maybe there’s some kind of nominal value,…

Anyone reading this comment, know that this is the other end of the extreme to saying everyone does well. The truth is far more in the middle with many shades of grey.

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

#307

Post by pjc50 » Thu, Mar 09, 2023, 1:04 PM UTC

blitzar wrote: post #302

madaxe_again wrote: post #230

Earlier quoted context omitted.

Based on personal experience and friends who have been at unicorns in their early days - the first 50 employees average about $0. The next 100 average about $0. In every case, the stock that the employees holds gets reclassified and diluted until it’s a funky employee-only stock that’s only saleable back to the company at nominal value, but the company isn’t buying. So sure, maybe there’s some kind of nominal value,…

Zuckerberg, Brin, WeWork Guy etc all first 50 employees of unicorns ... you saying that their 100's of billions are actually zero value because they are 100's of billions of funky employee-only stock that’s only saleable back to the company at nominal value? Also why pay $3.5bn of tax on $0 of value? Given how sharp tech is about tax minimization you would think they would have better tax people.

They're not usually employees, they're owners. Adam Neumann even managed an extraordinary scam whereby he had the shares with voting power and the investors didn't. https://www.washingtonpost.com/business/2019/10/24/adam-neum...

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

#308

Post by pjc50 » Thu, Mar 09, 2023, 1:09 PM UTC

CodeWriter23 wrote: post #104

ztratar wrote: post #83

Earlier quoted context omitted.

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

If your SOP is handing out options, yes it is. I’d also say GAAP likely requires building a cash reserve to cover such liabilities. I’m not an accountant but I’m pretty sure they have to be ready to cover the difference between the option and strike price until the expiry of the option. One would imagine that is less than tax when the option remains unexercised.

That is absolutely not how options work; the options entitle you to shares, not cash, so all they have to do is put aside a part of the share pool.

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

#309

Post by matthewowen » Thu, Mar 09, 2023, 1:10 PM UTC

gitfan86 wrote: post #296

sillysaurusx wrote: post #143

Earlier quoted context omitted.

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

After the 2000 dotcom bubble equity for employees became a lottery. If you got really lucky your shares were priced at a 50k market cap and the company ended up only diluting those down by 50% and the company went public making your shares worth 800k. But now that situation is rare. The investors and founders and bankers ensure that they take the vast majority of the upside when going public. If you are joining a com…

I don’t really buy this, but that’s largely based on own fairly positive experience of stock compensation at private companies.

I will say that I think these conversations tend to be a little distorted because people who have had positive experiences feel awkward about saying “i made $xxMM from employee stock” but people who haven’t seem comfortable saying “stock based compensation was worthless”.

Also tbh a lot of people are just really bad at judging companies and wind up working at startups that are obviously going to fail. You really do have to make an honest assessment of if you are good at picking winners.

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

#310

Post by blitzar » Thu, Mar 09, 2023, 1:13 PM UTC

pjc50 wrote: post #307

blitzar wrote: post #302

Earlier quoted context omitted.

Zuckerberg, Brin, WeWork Guy etc all first 50 employees of unicorns ... you saying that their 100's of billions are actually zero value because they are 100's of billions of funky employee-only stock that’s only saleable back to the company at nominal value? Also why pay $3.5bn of tax on $0 of value? Given how sharp tech is about tax minimization you would think they would have better tax people.

They're not usually employees , they're owners. Adam Neumann even managed an extraordinary scam whereby he had the shares with voting power and the investors didn't. https://www.washingtonpost.com/business/2019/10/24/adam-neum...

Ahh ok, so Marissa Mayer then ... didn't make anything more than salary from being #20 employee at google?

Adam Neumann even managed an extraordinary scam of being currently worth 2x the company that made him all his money ...