4 ms·

> RSU comp is taxable on vest I’m in the job interview process right now Looking at a pre-IPO company with RSUs Does this mean that I pay taxes on those RSUs

by cgb223 4y ago

> RSU comp is taxable on vest I’m in the job interview process right now Looking at a pre-IPO company with RSUs Does this mean that I pay taxes on those RSUs when I get them, _even_ if I don’t sell them?

phxrsg 4y ago
Depends on if they are set up with a double trigger. Here is a decent explainer, but you can research more about RSU double triggers that can help avoid taxes for large-but-private companies: https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-double-trigger-rsu-vesting https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-do... What this does mean, though, is that until the second trigger is hit you haven't technically vested the RSUs. So you get around the taxation but there may be additional conditions on your equity. Basically - make sure you read the stock plan
- yardstick 4y ago
  > So you get around the taxation And pay a lot more tax in the process, than if you were able to exercise early. IRS always has to have its cake and eat it.
  - dilyevsky 4y ago
    Early exercise is rarely ever an option except for very early stage companies. Most are ISOs with 90d window (which if you’re lucky converts to NSOs with a longer window) which is worst of both world bc of AMT
    - yardstick 4y ago
      Yes, because of IRS taxation rules
deleted 4y ago
[deleted]
jfim 4y ago
You have to pay taxes on RSU when they vest, regardless of whether you sell or not. It's basically considered cash compensation, but instead of cash you receive shares. Since your company is pre IPO, they may have a dual trigger vesting schedule, where shares vest over time but require an actual liquidity event for you to actually receive the shares, giving you no tax liability while the company isn't public. However, this means that once the company goes public, you'll have to pay all of that liability at once, at ordinary income tax rates. Disclaimer: not an accountant, much less your accountant, this is not financial advice, seek proper advice from a qualified professional.
- hedora 4y ago
  The tax rates will probably not be what most people consider "ordinary". In CA, the top marginal bracket is about 52%. If you're getting N years of windfall-level income in one year, some of the income is likely to be in that top bracket. This means that all sorts of tax stragegies you probably are not familiar with will kick in. For instance, it might make sense to move charitable contributions into that year, since the IRS will effectively be matching them. Also, AMT will probably kick in, so consider hiring an accountant.
- deleted 4y ago
  [deleted]
ambrood 4y ago
pre-IPO RSUs usually come with a double trigger. meaning you vest them monthly or quarterly etc but a liquidity event such as an IPO, is needed to actually "vest" them in a taxable sense.

by cgb223 4y ago

phxrsg 4y ago

Depends on if they are set up with a double trigger. Here is a decent explainer, but you can research more about RSU double triggers that can help avoid taxes for large-but-private companies: https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-double-trigger-rsu-vesting https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-do... What this does mean, though, is that until the second trigger is hit you haven't technically vested the RSUs. So you get around the taxation but there may be additional conditions on your equity. Basically - make sure you read the stock plan

yardstick 4y ago
> So you get around the taxation And pay a lot more tax in the process, than if you were able to exercise early. IRS always has to have its cake and eat it.
- dilyevsky 4y ago
  Early exercise is rarely ever an option except for very early stage companies. Most are ISOs with 90d window (which if you’re lucky converts to NSOs with a longer window) which is worst of both world bc of AMT
  - yardstick 4y ago
    Yes, because of IRS taxation rules

deleted 4y ago

[deleted]

jfim 4y ago

You have to pay taxes on RSU when they vest, regardless of whether you sell or not. It's basically considered cash compensation, but instead of cash you receive shares. Since your company is pre IPO, they may have a dual trigger vesting schedule, where shares vest over time but require an actual liquidity event for you to actually receive the shares, giving you no tax liability while the company isn't public. However, this means that once the company goes public, you'll have to pay all of that liability at once, at ordinary income tax rates. Disclaimer: not an accountant, much less your accountant, this is not financial advice, seek proper advice from a qualified professional.

hedora 4y ago
The tax rates will probably not be what most people consider "ordinary". In CA, the top marginal bracket is about 52%. If you're getting N years of windfall-level income in one year, some of the income is likely to be in that top bracket. This means that all sorts of tax stragegies you probably are not familiar with will kick in. For instance, it might make sense to move charitable contributions into that year, since the IRS will effectively be matching them. Also, AMT will probably kick in, so consider hiring an accountant.
deleted 4y ago
[deleted]

ambrood 4y ago

pre-IPO RSUs usually come with a double trigger. meaning you vest them monthly or quarterly etc but a liquidity event such as an IPO, is needed to actually "vest" them in a taxable sense.