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...
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.
So it depends on when you invested in Uber. Because late stage investors (which includes employees compensated with equity) didn't make life changing amounts of money because the price since IPO has actually gone down, unlike, say Apple. But everyone forgets that the VCs, who are the real players in this game, angle invested at sub-cent strike prices. Approximately, what's the math on how much you make if you sell a hundred million shares at $40, with a strike price of $0.0001. Compare that to a later employee 100k shares with a strike price of $39.50.
They certainly can let the old RSUs expire worthless, but holding up the "social contract" (as opposed to the strict legal contract) with their employees (and former employees!) while also not drawing the ire of the IRS may be a challenge.
If you give new RSU grants, what time period do they vest over? What happens to current employees who leave before then, if they are required to re-earn-out their comp? What can you do at all about former employees?
Will the IRS still accept that this deferred compensation is subject to "substantial risk of forfeiture" and thus the taxes on it can be deferred (see U.S. Code 409A)?
Stripe is trying to do option b), buy back stock at current valuation. To do so, they need to raise a couple billion dollars. That money will go to the employees (in exchange for some stock) so that the employees can settle up their taxes, though the IRS will "cut out the middleman" so to speak, and requires Stripe to simple withhold the proceeds and remit to the IRS on the employees' behalf.
The $3.5B tax bill is not "corporate tax" owed by Stripe, but employee income tax that will be owed by employees if there is a liquidity event, and which Stripe will be, in practice, required to withhold on their behalf if Stripe arrange that liquidity for them.
I don't think the company would be in trouble with the IRS if the rsu's are not exercised. I also don't think it would be breaking the social contract if the employees were granted new replacement rsu's with term limits that aren't contingent on employment. It's not that different then unemployed sitting on vested stock waiting for an IPO or liquidity event.
Maybe I don't understand something in the tax law, which is entirely possible.
Whether this is a good deal for the employees remains to be seen and depends on the spread between the current buyback value and the eventual IPO price.
The whole point of the double-trigger RSU situation is to create a "meaningful risk of forfeiture". It's only that condition that makes the IRS okay with not taxing the RSUs until they're liquid. If employers just top up employees when their old RSUs expire, there really isn't any meaningful risk of forfeiture anymore.
I don't have a full understanding of exactly what language in which laws/documents govern this, but my general understanding is that the IRS would definitely not be happy about that, as it undermines the whole point of the double-trigger RSU.
Sitting on vested stock is different than being granted new stock (as a replacement) without being a current employee. That may open Stripe up to some additional tax/liability.
> I don't think the company would be in trouble with the IRS if the rsu's are not exercised. I also don't think it would be breaking the social contract if the employees were granted new replacement rsu's with term limits that aren't contingent on employment.
But the company and employees would definitely be in trouble with the IRS if they were granted new replacement rsu's with term limits that aren't contingent on employment.
>Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election.
I don't think anyone that joined on 2016 or after got more than 0.0000001% of equity or whatever, so it wouldn't have been a massive bill. Also, that's the point of 38b anyway. Tax now or later, but tax.
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...