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Yep. I just got an equity payout from an acquisition. It’s a lot of money, though it isn’t going to allow me to retire early. Would be enough for a house down p

Yep. I just got an equity payout from an acquisition. It’s a lot of money, though it isn’t going to allow me to retire early. Would be enough for a house down payment, which is good enough for me! However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating.

lotsofpulp 6y ago
How was it paid out that your federal income tax liability is 40% Or are you talking about withholding? Which is not accurate to describe as “taxes paid”. Also, if including state tax, then it might be higher, but I would still be surprised if your total tax liability was over 40%.
- sokoloff 6y ago
  They didn’t claim their federal tax liability was 40%; they claimed they were paying 40% total tax rate on the acquisition-related income, something which is true for most employees in most states for many acquisitions.
  - tenaciousDaniel 6y ago
    Yep, total tax rate.
  - lotsofpulp 6y ago
    I’m aware, but I don’t see how that has a relevance to discussion Netflix’s federal income tax liability. My point was people in these comments are throwing out personal tax liability figures for comparison including various things such as state taxes, social security, Medicare, which makes things not very comparable.
    - sokoloff 6y ago
      Because people are people and not math proof generation engines. Someone worked hard, achieved an intermediate goal that they hoped was going to move them one rung up the economic ladder only to find out that taxes took a much larger bite than they’d hoped or previously considered. So, they’re naturally discouraged to read about some big company somewhere paying a much lower overall rate while comparing it to their own. Perhaps the real question is why the authors of these articles don’t put everything into terms more directly relatable to the people reading the article? That’s because doing so makes for less outrage-sharing of the article.
- bzbarsky 6y ago
  If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax). If it's paid out as some sort of investment income not subject to long-term capital gains treatment (e.g. interest, non-qualified dividends), then your top federal rate is 40.8% (37% regular, 3.8% net investment tax). That does assume $500k of taxable income not counting the payout we're talking about here, to hit that 37% tax bracket. If you have kids, you can hit these sorts of marginal rates at lower incomes too, because of the 5% marginal tax rate from the child credit phaseout. I should note that money is fungible, so the fact that some of this is claimed to be "medicare" tax and some is claimed to be "income" tax is irrelevant to both the person paying the tax and the government collecting the tax. Medicare is not funded solely by the "medicare" tax in practice, so the fact that there's a separate tax is more or less an accounting oddity.
  - TuringNYC 6y ago
    >> If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax). There is also state tax, which can be significant (double digits), esp for top brackets.
    - bzbarsky 6y ago
      Indeed. That varies widely, though, and corporations are subject to it too, with its own weirdnesses, so I was trying to stick to apples-to-apples federal tax comparisons.
      - TuringNYC 6y ago
        I does vary widely, but the weighted majority of all such cases are in California (and NY might be next.) Those two states happen to have among the highest state taxes also. Consider this: Where were the last 20 major IPOs? The last 20 major acquisitions? Where were the founding teams (i.e., the ones with the most stock facing such issues.) ...I'll bet 80% or more of these were in CA. I'm only pointing this out because once you're a super-successful startup and you've gone thru all the steps for a successful liquidity event, there is the final bath of taxes :-/
pessimizer 6y ago
Needing the equity payment from your acquisition, untaxed, to put a down payment down on a house is not what the vast majority of people would think of as desperation. You're going to get enough tax breaks and subsidy for buying the house anyway.
- frankbreetz 6y ago
  What kind of tax breaks and subsidies are available for home buying?
  - frockington1 6y ago
    The big one is deducting interest paid. It greatly reduced the amount of money the government takes from me every year
ghufran_syed 6y ago
“small” corporations could do exactly the same - if you find employment easier than starting your own company and fighting to get customers, maybe everyone else does too? But if there is an economic benefit to people starting companies, shouldn’t tax policy also recognize that and try to make it easier? You never see headlines saying “$blahCo lost $400 million dollars of their own money last year, of which $50 million was taxes to the government and $300 million was payment to employees”. Doesn’t that suggest you’re only hearing one side of the story now?
darkarmani 6y ago
> However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating. You can weasel out of it as well. You need to exercise your options at least a year before acquisition. Often you can do this even if you haven't vested the options yet.

lotsofpulp 6y ago

How was it paid out that your federal income tax liability is 40% Or are you talking about withholding? Which is not accurate to describe as “taxes paid”. Also, if including state tax, then it might be higher, but I would still be surprised if your total tax liability was over 40%.

sokoloff 6y ago
They didn’t claim their federal tax liability was 40%; they claimed they were paying 40% total tax rate on the acquisition-related income, something which is true for most employees in most states for many acquisitions.
- tenaciousDaniel 6y ago
  Yep, total tax rate.
- lotsofpulp 6y ago
  I’m aware, but I don’t see how that has a relevance to discussion Netflix’s federal income tax liability. My point was people in these comments are throwing out personal tax liability figures for comparison including various things such as state taxes, social security, Medicare, which makes things not very comparable.
  - sokoloff 6y ago
    Because people are people and not math proof generation engines. Someone worked hard, achieved an intermediate goal that they hoped was going to move them one rung up the economic ladder only to find out that taxes took a much larger bite than they’d hoped or previously considered. So, they’re naturally discouraged to read about some big company somewhere paying a much lower overall rate while comparing it to their own. Perhaps the real question is why the authors of these articles don’t put everything into terms more directly relatable to the people reading the article? That’s because doing so makes for less outrage-sharing of the article.
bzbarsky 6y ago
If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax). If it's paid out as some sort of investment income not subject to long-term capital gains treatment (e.g. interest, non-qualified dividends), then your top federal rate is 40.8% (37% regular, 3.8% net investment tax). That does assume $500k of taxable income not counting the payout we're talking about here, to hit that 37% tax bracket. If you have kids, you can hit these sorts of marginal rates at lower incomes too, because of the 5% marginal tax rate from the child credit phaseout. I should note that money is fungible, so the fact that some of this is claimed to be "medicare" tax and some is claimed to be "income" tax is irrelevant to both the person paying the tax and the government collecting the tax. Medicare is not funded solely by the "medicare" tax in practice, so the fact that there's a separate tax is more or less an accounting oddity.
- TuringNYC 6y ago
  >> If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax). There is also state tax, which can be significant (double digits), esp for top brackets.
  - bzbarsky 6y ago
    Indeed. That varies widely, though, and corporations are subject to it too, with its own weirdnesses, so I was trying to stick to apples-to-apples federal tax comparisons.
    - TuringNYC 6y ago
      I does vary widely, but the weighted majority of all such cases are in California (and NY might be next.) Those two states happen to have among the highest state taxes also. Consider this: Where were the last 20 major IPOs? The last 20 major acquisitions? Where were the founding teams (i.e., the ones with the most stock facing such issues.) ...I'll bet 80% or more of these were in CA. I'm only pointing this out because once you're a super-successful startup and you've gone thru all the steps for a successful liquidity event, there is the final bath of taxes :-/

pessimizer 6y ago

Needing the equity payment from your acquisition, untaxed, to put a down payment down on a house is not what the vast majority of people would think of as desperation. You're going to get enough tax breaks and subsidy for buying the house anyway.

frankbreetz 6y ago
What kind of tax breaks and subsidies are available for home buying?
- frockington1 6y ago
  The big one is deducting interest paid. It greatly reduced the amount of money the government takes from me every year

ghufran_syed 6y ago

“small” corporations could do exactly the same - if you find employment easier than starting your own company and fighting to get customers, maybe everyone else does too? But if there is an economic benefit to people starting companies, shouldn’t tax policy also recognize that and try to make it easier? You never see headlines saying “$blahCo lost $400 million dollars of their own money last year, of which $50 million was taxes to the government and $300 million was payment to employees”. Doesn’t that suggest you’re only hearing one side of the story now?

darkarmani 6y ago

> However, I am paying literally 40% in taxes due to how it was paid out. As someone who desperately needs this money, it’s devastating. To hear that large corps can weasel their way out of paying is extremely infuriating. You can weasel out of it as well. You need to exercise your options at least a year before acquisition. Often you can do this even if you haven't vested the options yet.