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Comment by BlackjackCF | Hacker News Reader

Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless.

And since these are the company’s early employees, I imagine that Stripe is doing this to try and ensure they retain them.

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Shouldn't the strike of the options make them worthless at grant time? I was under the impression that the 83b election is awesome because it basically gives you tax free grants.

That may be the case if you're employee number 10, but if the company already has a high valuation you're in trouble

Making sure I get your point: if I get a job at a mature company, like amazon, and they give me, say, 100k in stock options, then AIUI filing a 83b would be painful as I'd owe taxes on 100k even before they vest.

But as the stock vests, isnt that treated as income and taxed anyway? And then taxed again if I sell (as capital gains)?

If so then it comes down to a gamble of whether the stock is going to go up by the time the stock vests and whether you happen to have the spare cash around to pay a tax bill.

Am i reading that right?

But as a mature company, Amazon's stock price is not likely to undergo huge swings. Thus you wouldn't file an 83b. However, a startup aiming for unicorn status will have a huge inflation in valuation on the way to being a unicorn (and beyond). If you're unlucky, doing an 83b early exercise will hit right as the valuation jumps, leaving you with a five figure tax bill. I mean, that's better than, say, an eight figure tax bill, but taking a five figure risk so early on in a companies life cycle when there's not even a proven product market fit is, well, risky. If you're in a place where losing that kind of investment because of a remotely possible potential upside, your risk tolerance is simply higher than mine.

The other thing to consider is your vesting timeline. As you vest, you'll owe additional taxes, which means a sizable tax bill before there's been a liquidity event. If you are rich enough to afford that then hey, go for it. But not everyone is in a position to be able to do that.

The main difference between a company like Amazon and a smaller startup is that Amazon grants RSUs whereas a smaller startup will grant options. The value of options is the (current price - strike price), which will be close to 0 at the grant date. So you can do an 83b election and owe nothing at both grant and vest time.

AIUI, If you file 83b you dont pay any taxes when the the options vest. You own the stock in clear. You still pay capital gains if you sell the stock and realize profit.

You need an 83b if you think the stock will vest before you can sell it. Imagine having $10M of stock vest, no option to sell it, and no way to pay the tax on it.

It is a weird artifact of the way vesting triggers taxation of unrealized gains and it fucks people all the time.

This is true for options but not RSUs.

You cannot elect 83b on RSU's.

If they were the earliest employees the stock should have been at par value, making the tax payment minimal.

Later employees typically get options, which don't have the tax issue.

So I'm still unclear where the tax bill is coming from.

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.

I don't know why you believe later employees get options. It is true that at public companies, employees often are compensated with options, but at "startup"s where the FMV of a new employee grant would be prohibitively expensive to either early exercise or pay income taxes on, employees get RSUs.

Options are for small companies, and 83b elections when the exercise price can be paid by the employee upfront. RSU are for unicorns. Once the company is public and there is liquidity you can do whatever. Except backdating stock options...

Someone here is confused, and it might be me. As I understand it:

In a company where the fair market value share price is $1/share, if you get granted 100 options, you owe tax on $0 because options are not taxable.

If you get granted 100 RSUs which are all fully vested, you owe tax on $100 because stocks are taxable. If the RSUs are 0% vested you don't owe any tax yet.

Then, if the share price goes up to $2 a share, you still owe $0 tax on your options, but if you have RSUs and 50 of them now vest, you immediately owe tax on $100 (50 x $2) - unless you did an 83b election and paid taxes on the 100 shares at $1 a share at the time you got the grant.

If you exercise the options, now you owe tax on $200 (100 x $2), whether or not you can sell the stock.

So again, I don't understand why Stripe would have a tax bill under any of these scenarios.

The employees would have a tax bill connected with vesting of RSUs if they had not done an 83b election, but no one else would have any tax due until they (exercise in the case of options) and then sell the stock.

If I'm understanding it correctly, the employees won't have a tax bill if they let the options expire, but they are presumably worth millions so they don't want to just throw that money away. If they exercise then they will owe taxes and they will also have no way to sell the shares (currently) to pay the tax bill.

Sure, but options don't expire while you are an employee.

So if Stripe wants to let employees sell stock, they only have to exercise options equal to the number of shares they will sell, then they can use the proceeds to pay the tax.

I still don't understand why there is a tax bill for Stripe.

> Sure, but options don't expire while you are an employee.

ISOs (not totally sure about NSOs) have a 10 year expiration from grant date[0].

[0]: https://www.law.cornell.edu/cfr/text/26/1.422-2

But one thing that I did not follow: in my experience most of the companies that offers RSUs are mostly public. I have been in some companies as Stripe and all of them gave options due to this exactly kind of issue.

Does someone has some rationale/speculation on why Stripe issued RSUs instead options?

RSUs tend to be considered lower risk to employees. For instance if you were issued options last year when stripe was valued at double what it is now, there is a good chance your options are underwater.

With RSUs while the value has gone down, they are at least worth something, if you could sell them.

Also, Stripe was in hiring competition with companies who used RSU compensation as a major component of total comp. This allowed them to more easily do an apples to apples comparison.

They way I'm reading the article is that there are employees that would incur large tax liabilities by exercising their options, but have no way to sell those option, so Stripe is looking to cover those taxes.

Whether those employees may or may not have been able to ameliorate this by making an 83b election is moot at this point. They clearly didn't, so now something has to happen if the company wants to keep them around.

I can't read the whole article but are they planning to buy back some of the stock to cover the tax, or simply pay it as some kind of a perk.

Edit: after reading the archive link, it seems that the former case is the most likely.

Yeah, I think it's the former, so it'll feel more like "sell to cover" for the employee. I'd have to imagine that paying it as a perk would trigger its own tax liability.

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