One of the biggest drawbacks for startup employees who receive stock as part of their compensation can be taxes. When employees’ restricted stock vests or they exercise options, they have to pay taxes on any built-in gains, even if they can’t sell the stock. A congressional bill expected to be introduced early this week aims to reduce the potential burden.
The bill, dubbed the Empowering Employees through Stock Ownership Act , would let employees defer paying all of the taxes on unrealized stock gains for up to seven years, unless the company goes public, is sold or lets employees sell on the secondary market in the meantime. The bill would also require companies to withhold extra taxes from employees who defer, essentially forcing employees to save money for the inevitable tax bill.