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Wouldn't RSUs open employees to a different and more punitive tax regime (income tax) than options (which would fall under capital gains if you exercised early
by ktothemc 10y ago
Wouldn't RSUs open employees to a different and more punitive tax regime (income tax) than options (which would fall under capital gains if you exercised early enough)?
- superuser2 10y agoI believe if you hold your RSU-granted stock for 1 year, you can pay capital gains tax on it instead. I'm not a CPA.
- phamilton 10y agoYou would only pay capital gains on the gains from that stock. At RSU vest you would owe taxes on the market value of those RSUs.
- URSpider94 10y agoBut, you have to pay income tax on the value of the shares at the time when they vest, i.e. become non-restricted. You have zero control over that vesting schedule, and thus the tax bill, and you likely wouldn't have a liquid market for the shares before an IPO. Any gain post-vest can indeed be long-term cap gains, if you hold the shares > 1 year.
- phamilton 10y agoRSUs are simpler and can be planned for. For example, a company could grant RSUs with a mandatory buy back vesting schedule (basically 83b election) upon hire and include the taxes as part of the comp package. Examples: Junior Engineer Sally joins Company A and is offered 0.25% of the company in RSUs. Company A recent raised at a 20M post money with a preferred share price of $1 and a FMV of $0.20. She owes tax on $10k of RSU gains. Company A either: 1) Buys back $4000 of stock in order to cover taxes 2) Provides a $4000 signing bonus to cover taxes. Senior Engineer Bill joins Company B and is offered 0.05% in RSUS. Company B recently raised at a $500M valuation with a preferred share price of $10 and FMV of $3. He owes tax on $75k of RSU gains. Company B either 1) Buys back $30k of stock or 2) provides a $30k signing bonus.