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Shriram Bhashyam November 16, 2017
As has been widely reported, the Trump Administration and Congress have been working on tax reform. The Senate's version of the tax bill sought to tax stock options and RSUs upon vesting. Currently, options are taxed upon exercise and RSUs are taxed when the underlying shares are released (for background on equity compensation, see this post). Typically, options vest over four years, with a one year cliff followed by a monthly vest over the remaining three years. By bringing forward the taxable event to vesting, employees would owe taxes on shares they don't even own yet! For options, startup employees would be hit with big tax bills every year, even before the options were exercised and whether or not the employee actually sold the shares to get cash. There would be a similar result for RSUs, where taxes would be due before employees actually got the shares, let alone sell them to get cash.
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