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.
Later employees typically get options, which don't have the tax issue.
So I'm still unclear where the tax bill is coming from.
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...
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.
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.
ISOs (not totally sure about NSOs) have a 10 year expiration from grant date[0].
Does someone has some rationale/speculation on why Stripe issued RSUs instead options?
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.
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.
Edit: after reading the archive link, it seems that the former case is the most likely.
Those secondary markets have dried up in the general macroeconomic environment, so now this practice is leaving people with their pants down, complete illiquidity.
So again, I don't see why Stripe has a tax bill now.
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.