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I don't know how pre-public to IPO RSUs work but let's do some math assuming IPO day is "day when RSUs vest": IPO day and you get 1000 RSUs unlocked/vested. Sh

by lbotos 2y ago

I don't know how pre-public to IPO RSUs work but let's do some math assuming IPO day is "day when RSUs vest": IPO day and you get 1000 RSUs unlocked/vested. Share price is $80. You made 80k gains. For simplicity let's say you owed 40K in taxes. One of two things happens: - Hasihcorp auto sells to cover and you get 500 less shares. - You need to pay your taxes on your own and earmark 40K. Let's pick the easy one: If Hashicorp sold for you that day you are now sitting on 500 shares with a cost basis of $80. Let's go to today, IBM buys and the person held. 500 shares are now were $35 so the value is $17,500. You cash out -- getting 17,500 in your account, and a capital loss of $22,500. Sure, 17K isn't as cool as 40K, but the person still "made money" just _less_. You make it sound like this person is now "underwater" because they had a capital loss. ===== And kids at home, this is why you sell some/all of your RSUs as you get them. No one company should be more than 15% of your portfolio. Even the one you work at.

deleted 2y ago
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glenngillen 2y ago
I don't need to make any assumptions about anything here, other former colleagues have gone through the specifics in other replies. Nothing is auto-sold at IPO to cover taxes, a maximum of 10% of what had vested was allowed to be sold before the 6mo lockup expired. There was a total of a few weeks before a combination of trading blackout window, lockup, and market crash conspired to have make it easy to be underwater if you hadn't elected to sell everything you could coming into the IPO. _A lot_ of people ended up with a loss.
- sgerenser 2y ago
  I’m pretty sure U.S. law requires companies to withhold at 22% (or optionally higher) for any bonus/non-salary payments, which includes RSU vesting. Companies can choose to either “sell to cover” or just issue a proportionally lower amount of shares (e.g. you vested 1000 shares but only 780 show up in your brokerage account). The problem occurs when 22% isn’t enough, which is often the case.
- lbotos 2y ago
  Ok -- I need your help. I'm missing something here. People got RSUs. They owed tax on said RSUs. The tax cannot be higher than the value of the RSU at the time of vest. If people did not have enough cash to pay their tax bill, and did not sell enough RSUs to get cash to pay said tax bill, then yes, I can see those people "with a loss" because they had a "surprise" tax bill, RSUs price went down and a cash problem now. Is this what you mean happened? They shouldn't have had to "sell everything" -- at most like 50%. I'm arguing with you here because this stuff is complex, and many people shy away from trying to understand it, and that's a huge disservice for those in our industry. For anyone reading along -- It's as simple as this: understand the tax implications of the assets you own, pay your taxes.
  - glenngillen 2y ago
    That's part of the surprise - I can't speak to the specifics for US citizens more than others in this post have as I'm not based there. Tax definitely wasn't determined _at time of vest_ for anybody though, it was time of liquidity. In Australia we were granted options, which ordinarily are taxed at time of exercise. Lots of people were surprised to discover, almost a full year after the IPO, that those options were also subject to a tax deferral scheme and any tax already paid at exercise wasn't sufficient. The actual taxable amount determined by HashiCorp and the ATO was the $80 IPO price. If you sold the full amount you were entitled to (10% of your vested holdings) at the IPO you were probably fine. If you sold nothing, because you thought you had already paid the required taxes, by the time you received the tax statement the value of your stock would have been less than what you owed in taxes.
throwaway2037 2y ago
> No one company should be more than 15% of your portfolio. Even the one you work at. Tell that to the guy who went all-in for NVidia employee share purchase plan and is worth more than 50M USD. (I think it was a Register article posted here recently.) Sometimes the gamble is worth it. That said, for every one of those once-in-a-lifetime stories, there are many, many more about engineers who walked away from post-IPO start-ups with very little wealth gained. So many have posted here before, it just isn't worth it.

by lbotos 2y ago

deleted 2y ago

[deleted]

glenngillen 2y ago

I don't need to make any assumptions about anything here, other former colleagues have gone through the specifics in other replies. Nothing is auto-sold at IPO to cover taxes, a maximum of 10% of what had vested was allowed to be sold before the 6mo lockup expired. There was a total of a few weeks before a combination of trading blackout window, lockup, and market crash conspired to have make it easy to be underwater if you hadn't elected to sell everything you could coming into the IPO. _A lot_ of people ended up with a loss.

sgerenser 2y ago
I’m pretty sure U.S. law requires companies to withhold at 22% (or optionally higher) for any bonus/non-salary payments, which includes RSU vesting. Companies can choose to either “sell to cover” or just issue a proportionally lower amount of shares (e.g. you vested 1000 shares but only 780 show up in your brokerage account). The problem occurs when 22% isn’t enough, which is often the case.
lbotos 2y ago
Ok -- I need your help. I'm missing something here. People got RSUs. They owed tax on said RSUs. The tax cannot be higher than the value of the RSU at the time of vest. If people did not have enough cash to pay their tax bill, and did not sell enough RSUs to get cash to pay said tax bill, then yes, I can see those people "with a loss" because they had a "surprise" tax bill, RSUs price went down and a cash problem now. Is this what you mean happened? They shouldn't have had to "sell everything" -- at most like 50%. I'm arguing with you here because this stuff is complex, and many people shy away from trying to understand it, and that's a huge disservice for those in our industry. For anyone reading along -- It's as simple as this: understand the tax implications of the assets you own, pay your taxes.
- glenngillen 2y ago
  That's part of the surprise - I can't speak to the specifics for US citizens more than others in this post have as I'm not based there. Tax definitely wasn't determined _at time of vest_ for anybody though, it was time of liquidity. In Australia we were granted options, which ordinarily are taxed at time of exercise. Lots of people were surprised to discover, almost a full year after the IPO, that those options were also subject to a tax deferral scheme and any tax already paid at exercise wasn't sufficient. The actual taxable amount determined by HashiCorp and the ATO was the $80 IPO price. If you sold the full amount you were entitled to (10% of your vested holdings) at the IPO you were probably fine. If you sold nothing, because you thought you had already paid the required taxes, by the time you received the tax statement the value of your stock would have been less than what you owed in taxes.

throwaway2037 2y ago

> No one company should be more than 15% of your portfolio. Even the one you work at. Tell that to the guy who went all-in for NVidia employee share purchase plan and is worth more than 50M USD. (I think it was a Register article posted here recently.) Sometimes the gamble is worth it. That said, for every one of those once-in-a-lifetime stories, there are many, many more about engineers who walked away from post-IPO start-ups with very little wealth gained. So many have posted here before, it just isn't worth it.