Comment by kelnos | Hacker News Reader

Comment by kelnos | Hacker News Reader

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> I bet that lawyer will tell you (if this is in California) that you just need to send a letter saying “cool guys, send the shares, I’ll worry about the taxes. I don’t consent to forfeiture.”

Not sure about this. A random thing[0] I found says:

"RSUs are considered supplemental income, and as such, the income you receive from them is subject to withholding taxes. The IRS requires a federal withholding rate of 22% for supplemental income up to $1 million, and 37% for income exceeding that amount."

(It also links to the relevant IRS publication, but I am not interested in poring over it right now.)

So I believe the employer is required to do that withholding.

It does seem pretty sketchy that current employees have access to a sell-to-cover option, but former employees do not. This feels like the company trying to screw over former employees, since they don't care if a former employee gets mad at them. Over the years I've heard of quite a few companies (and founders) who have this bizarre, messed-up belief that employees who leave the company pre-IPO shouldn't be entitled even to their vested equity.

I glanced through an old RSU plan doc from a former employer, and it does talk about withholding, including a sell-to-cover option, but the wording sounds (to me, anyway; IANAL) like they aren't required to offer that option, only that they may do so. Obviously I have no idea what OP's legal docs say (or if I'm even interpreting this doc I do have correctly); a lawyer would need to go over them.

[0] https://www.harnesswealth.com/articles/what-you-need-to-know...

I think this illustrates perfectly why they should talk to a lawyer. I read through the link you posted. They don't mention anything about sec. 83(b) elections. It's a common strategy to avoid paying taxes until the RSU's are liquidated.

I know about it because my current employer structured the RSU's this way. Every ESOP and RSU plan I've ever participated in has been slightly different. Your link focuses on a very specific set of circumstances.

>They don't mention anything about sec. 83(b) elections

Perhaps because it is inapplicable. 83(b) election can only be used for property that has been transferred but not vested. (Having a lock-up period does not mean the property is unvested).

This is inaccurate. I'm not going to litigate it with you though. Google it. It's a common strategy for a company to perform an 83(b) election on your behalf when they grant you RSU's. This way, you don't have to pay taxes as the RSU's vest.

Also, typically, your shares do not just vest all at once. There is a cliff (typically a year) followed by monthly vesting. That's why the OP's situation doesn't make a lot of sense. They are former employees, therefore a liquidity event would not have triggered any type of vesting.

They most likely have dual trigger RSUs, so the second trigger is typically a liquidity event.

You are talking about single trigger RSUs with only time based vesting.

Also a 83b means you pay taxes at the time of issuance rather than vesting. If these folks received their shares post founding, that means that there might be substantial tax burden for them when they received these shares if a 83b was filed. This is why most folks do not opt for a 83b after a substantial FMV has been established for their shares. This is also why double trigger RSUs are popular, so you can actually execute sell-to-cover.

I can only speak from my experience but I've worked for two companies where the RSU's are structured as a pseudo-option.

Essentially, their price is set at FMV at the time of issuance. Since your net is zero at the time of issuance, you pay no taxes until there is a liquidity event and you can pay to cover.

Since this happened to me at two unrelated companies, I imagine it's a very common structure because it follows common sense and it works out great for everyone.

It's not clear what you're describing, so hard to say whether it's common.

RSUs are stock. When you get them, you pay tax on their value at income rates. To deal with this you can delay actually getting the RSUs (e.g. double-trigger vesting, common), or the company itself can provide liquidity for taxes (e.g. Carta's net settlement program, not common).

Either way, 83(b) elections don't apply. They do apply to RSAs and options with early exercise, so maybe you had one of those.

My experience here is as a founder who's spent entirely too many hours with lawyers trying to engineer the most employee-friendly stock plan possible.

It's very much a grey area where you can't apply set of hard rules because each corp will do it a little differently. This is why OP needs to talk with a lawyer. I have four data points to your one over my career and I'm only counting the ones that ultimately paid out.

- Microsoft - straight straight stock award and options

- Atlassian - Pre-IPO straight stock options

- Company you never heard of 1 - RSU pseudo-options

- Company you never heard of 2 - RSU pseudo-options structured a little differently from company 1

Repeat founder, double-digit data points.

Yes, companies can do arbitrarily weird things, like OpenAI's PPUs. No, these aren't common at startups, and there's no one way that beats all the others come tax time.

If you share the stock plan, or at least concrete details, we can get to the bottom of what you're describing. But understandably you aren't likely to do that.

My comments on my own experience were only relevant to my point of the OP should speak to a lawyer because every employee stock compensation plan is different. It feels like you are trying to discredit my personal experiences and I don't understand why. Do you not believe me or is your point that you know more about the topic than I do?

Going back to the top, you wrote:

> Essentially, their price is set at FMV at the time of issuance. Since your net is zero at the time of issuance, you pay no taxes until there is a liquidity event and you can pay to cover.

I do believe the broad outcome you experienced, including having an employer file an 83(b) for you, which is rare but possible. I don't believe "RSU's [...] structured as a pseudo-option" is an accurate description of the mechanics involved. At a minimum, it's underspecified, and could lead someone else reading this to make a bad financial assumption down the road.

> is your point that you know more about the topic than I do?

I don't know, was that your point when you wrote "I have four data points to your one"? My only point is that that particular argument isn't a sound basis for dismissing the feedback you're getting, whether from me or from the others who've responded.

As I've already stated, the only point I was trying to make is that every stock compensation program is structured differently. This was in response to an article that tried to offer very specific financial advice. I've consistently advised to not follow random internet article's advice and speak to an attorney. Are you saying that is bad advice?

On the other hand, you seem hell-bent on winning a pointless argument about my own personal experiences. We both know it has nothing to do with bad financial advice since I've offered none except to speak to an attorney. Again, do you disagree with that advice?

Also, IANAL but my impression is that modern RSU's are a construct created by the legal community to get around and/or comply with the legalities of securities rules around employee compensation. There is not a singular approach on how they are structured. Your experiences may have been the result of lazy legal teams. I have no idea, but I don't doubt them.

>I'm not going to litigate it with you though. Google it. It's a common strategy for a company to perform an 83(b) election on your behalf when they grant you RSU's. This way, you don't have to pay taxes as the RSU's vest.

No need to litigate or use internet search, I can just read Section 83(b) of subtitle A of the Internal Revenue Code[0]. Also, the election must be made on your own tax return, no one else can make it "on your behalf".

You have not explained what part of my comment in inaccurate.

Many companies are as ignorant of the actual law as their employees.

[0]https://www.law.cornell.edu/uscode/text/26/83

It’s a basic legal concept that you can’t just seize pay or any asset, but especially one worked for. So, you may be right that the employer must withhold — again no idea. That said, unless you’ve specifically agreed to seizure in the past, it would be very surprising if the company did not owe you the value of those RSUs, and perhaps the ongoing value of the stock depending on if they’d failed to deliver timely on request.

Who owes the IRS? The Company, on behalf of the person.

Who owes the company for paying? The person.

Each of these are separate obligations. The company is trying to tie them together for convenience, and presumably to wash out some RSU liabilities at the same time.

> So I believe the employer is required to do that withholding.

Sure but the withholding is the responsibility of the employer. In this case, shouldn't the employer cover it and send the shares - xx%?

The group are not employees. They're ex-employees. There is no employer relationship in this case. The responsibility for withholding is somewhere else.

RSUs are wage income, and subject to supplemental wage withholding. The responsibility for wage withholding is with the payer.

I would be wary of assuming that is true for purposes of RSUs. Whether these folks and the company consider them current "employees" is not the employee-employer test for tax withholding purposes.

I'm no expert - not even a talented amateur. But, RSU's for employees are equity, and RSU's for non-employees are expense. I'm assuming, because books must balance, that there's a similar split in tax (and responsibility for tax).

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