4 ms·

> 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.

by kelnos 2y ago

> 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-about-restricted-stock-units-rsus/ https://www.harnesswealth.com/articles/what-you-need-to-know...

ryaniscool 2y ago
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.
- PopAlongKid 2y ago
  >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).
  - ryaniscool 2y ago
    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.
    - ypzhang2 2y ago
      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.
      - ryaniscool 2y ago
        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.
        FreakLegion 2y ago
        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.
csomar 2y ago
> 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%?
- kayo_20211030 2y ago
  The group are not employees. They're ex-employees. There is no employer relationship in this case. The responsibility for withholding is somewhere else.
  - abduhl 2y ago
    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.
    - kayo_20211030 2y ago
      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).
      - deleted 2y ago
        [deleted]
  - toast0 2y ago
    RSUs are wage income, and subject to supplemental wage withholding. The responsibility for wage withholding is with the payer.
vessenes 2y ago
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.

by kelnos 2y ago

ryaniscool 2y ago

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.

PopAlongKid 2y ago
>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).
- ryaniscool 2y ago
  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.
  - ypzhang2 2y ago
    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.
    - ryaniscool 2y ago
      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.
      - FreakLegion 2y ago
        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.

csomar 2y ago

> 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%?

kayo_20211030 2y ago
The group are not employees. They're ex-employees. There is no employer relationship in this case. The responsibility for withholding is somewhere else.
- abduhl 2y ago
  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.
  - kayo_20211030 2y ago
    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).
    - deleted 2y ago
      [deleted]
- toast0 2y ago
  RSUs are wage income, and subject to supplemental wage withholding. The responsibility for wage withholding is with the payer.

vessenes 2y ago

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.