This story completely misses what the lawsuit is actually about. It isn't just a bunch of employees who are pissed that the stock went down.
Employees' RSU agreements stated that Uber would deliver their shares 6 months post-IPO. A few days before the IPO Uber decided to amend the agreement and accelerate the vesting, so shares would be available on IPO day itself.
Why did they do this? Uber is legally required to withhold taxes during a vesting event. The most common way to do this is to sell a percentage of the shares immediately on vest. This, however, increases the total number of shares in the market and depresses the stock price. To avoid this, Uber decided to pay for the taxes out of their own pocket and claim a percentage of the shares for themselves (basically a private stock buyback).
By moving the vest date up, Uber gambled on the fact that the stock price would be higher in 6 months, and the move would thus benefit both themselves (less out of pocket spend for withholding) and the employees (difference taxed as capital gains rather than regular income). Instead the opposite happened and both parties lost out. More importantly Uber reduced their own risk by locking down their total liability at the IPO date itself and exposed their employees to the whims of market fluctuations.
Thanks. The article initially read as if people had held their stock as if it was an investment and are mad they didn't sell to cover the tax bill sooner. After your explanation it is much clearer.
tl;dr Uber accelerated vesting of employee grants so that they happened during the lockout period. Also they could have proactively taken more out to cover taxes for the employee but chose instead to take the minimum out.
This seems... spurious. Granting IPO stocks on IPO day is beneficial if the stock goes up, and "detrimental" if the stock goes down from the initial price instead, which is what happened with Uber.
The article makes it look like Uber tried to short change employees, but if the stock had rocketed up, they would have saved employees a ton of money in taxes because the gain from IPO price to the price when the lock-up expired would have been taxed as capital gains.
They also make it looks like these people are all making pennies because the stock didn't do well, which we all know is obviously not the case (especially if they are engineers).
Side note: when people bash ISOs because they are evil or something, I just think of tax implications like this. This wouldn't happen if they were options instead of RSUs.
Suppose you're at Uber, got your shares on IPO date (May 9) and sold 6 months later (~Nov 9), wouldn't the tax shenanigans be a wash for you? You were taxed when they vested, so the new cost basis would be the IPO price, and you'd get to claim a loss when you sold?
It's a little different if you held into 2020, though. Then you'd be on the hook for the higher taxes, but again, you should still be able to eventually claim the loss, so as long as you're in the same tax bracket, it'd be OK.
Wouldn't they be taxed at the bonus rate when they vest (22%)?
The IRS gives you some time to pay the difference; I think if they get their money in the tax year, they're happy. So if you owed those taxes but knew you'd sell in November, the loss would offset the gain, and it'd be like you never owed the taxes. It would work out so you'd pay taxes on the sale price as though it were all short term capital gains. The problem comes if you don't sell in 2019. First, you'd owe those taxes on gains you never really saw. When you realize the loss, you'd be owed the taxes back, but as an offset to gains elsewhere the year you sell, or in $3000 increments for the rest of your life.
37% is the highest federal marginal tax rate. It starts at $510,301, which might kick in for a decent number of Uber shareholders at IPO.
That's also the tax rate, not the withholding rate.
I have no idea what they meant by "but likely need to pay a lot more than that yourself," unless that was a reference to state income tax. 37% is the highest bracket. It's higher than AMT. I'm not sure under what circumstances you'd owe more than 37%.
It's a class action, so it depends if it's opt-out or opt-in. If it's opt-out, you'll be in the class by not taking any action. The downside to class actions is usually that you can't sue on your own. You might also disagree with the merits of the case, so there could be an ethical concern on your end. You also might not like how much your lawyer is getting paid.
You have to read to paragraph #17 before you get the information the story is really about.
Uber delivered shares to its employees on the day of its IPO in May 2019, meaning employees would be taxed at the price of $45 a share. But the employees were restricted from selling their shares for six months, by which point the price had fallen to around $27 a share.
This definitely sucks for the employees. But it isn't really clear that Uber did anything wrong. In cases where there's an IPO pop, and employees want to hold on to the stock for a while, this can be good for employees, because more of their income happens via capital gains.
To me, the real lesson is that our tax code is stupid, because it treats "a share of stock that you are given on day X, but may not sell until day X+180" and "a share of stock that you are given on day X+180" in different ways, even though they seem exactly the same to the employee.
> Why is that stupid? I own the stock on day X (and ignoring the lock in period), it’s part if my compensation that I could sell and by any other stock.
He means that if I offered you stock with a 6 month lockup, or a stock with no lockup, you would prefer the second, and value it much higher.
are you allowed to short the stock during the period when you are not allowed to sell the RSU’s? In other words, is it possible to create a liability (the short position) that exactly offsets your asset (the RSU’s that are ‘delivered’ but that you can’t sell)?
Employees' RSU agreements stated that Uber would deliver their shares 6 months post-IPO. A few days before the IPO Uber decided to amend the agreement and accelerate the vesting, so shares would be available on IPO day itself.
Why did they do this? Uber is legally required to withhold taxes during a vesting event. The most common way to do this is to sell a percentage of the shares immediately on vest. This, however, increases the total number of shares in the market and depresses the stock price. To avoid this, Uber decided to pay for the taxes out of their own pocket and claim a percentage of the shares for themselves (basically a private stock buyback).
By moving the vest date up, Uber gambled on the fact that the stock price would be higher in 6 months, and the move would thus benefit both themselves (less out of pocket spend for withholding) and the employees (difference taxed as capital gains rather than regular income). Instead the opposite happened and both parties lost out. More importantly Uber reduced their own risk by locking down their total liability at the IPO date itself and exposed their employees to the whims of market fluctuations.