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Comment by Someone1234 | Hacker News Reader

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No, not at all. You're taxed on equity at fair market value when it vests. It's only after that when you get taxed at a lower rate on the capital gains.

This seems to say the opposite. If your employer grants you a statutory stock option, you generally don't include any amount in your gross income when you receive or exercise the option

https://www.irs.gov/taxtopics/tc427

The IRS page refers to Incentive Stock Options (ISOs) as "statutory" options. These are the "holy grail" because they allow you to avoid income tax at exercise and only pay capital gains when you sell.

ISOs have a 100k cap per year.

Further, the next line after your exceprt is "However, you may be subject to alternative minimum tax in the year you exercise an ISO", which is an income tax

Sundar's stock is not in the form of options, so this explanation is irrelevant.

No, these are RSUs, which - to your shock - are taxed as ordinary income upon payout (if that even occurs).

He did not get some custom stock now that will appreciate in value magically, if and only if he meets targets - or certain types of options can also act like this.

Even if GOOG stock grew so much, that this ended up being a $3B pay package, he'd be taxed as ordinary income on the full amount at payout - not even the reduced capital gains on the extra ~$2.7B in growth between agreement and payout.

These aren’t options, but you are otherwise correct.

Shocking? Taxed on payout is a discount versus ordinary stiffs who get taxed every year. A percentage taken from the increase of an amount every year, is more than the same percentage taken at the end; as the former foregoes the opportunity to earn a return on the amount taxed earlier. This is quite significant over longer periods. (I learned that from one of Warren Buffet's annual letters - I think he was explaining why insurance is a great business to be in, because the same effect applies to long-horizon insurance policies).

Getting a lump-sum payment at the end of three years is worse than getting paid incrementally, and is sort of the opposite of how insurance companies make money (which is taking frontloaded payments for long-term liabilities and investing the float).

You're thinking about cash. This is options

He is not getting options. ISOs have some interesting tax properties that are completely irrelevant to this.

> A percentage taken from the increase of an amount every year, is more than the same percentage taken at the end

It sounds like you're describing a hypothetical tax on unrealized gains? Do you have a link to the Buffet letter?

No; just the difference between someone who gets a fixed number of shares and has to sell them (and pay the tax on them) that year, versus someone who is allowed to accumulate the shares and pay the tax at the end.

This may assume that there is more alpha in the shares than other investments you have access to, which is perhaps less true today. But it should probably be your position if you're CEO of the company...

All the Buffett letters are online, but I don't remember what year it was. If I get time I may find it and report back.

Why do you think they get to accumulate shares and pay tax at the end. If options Sundar will have the pay income when exercised, or if RSU, they will have to pay income taxes when granted.

If you want to research the tax imlications, the relevant term is PSU (Performance Stock Units), which is the form almost all of these CEO incentives take.

(edited) My bad, I meant to type "options" not "shares". You get to choose when to exercise options. When tax is incurred will vary according to your jurisdiction.

I'm fairly sure that Sundar Pinchai will have paid someone to research the tax implications before negotiating this deal.

I don't think this would be considered capital gains if it's being paid to him. You typically pay income taxes on your income, if it's in the form of money given to you by your employer.

> then up to $230M/year is "lower tax rate than his secretary" income?

Why do you think that?

The IRS thinks that too. Stock grants, assuming they're EVER taxed (which isn't a given), are taxed at a lower rate than income. But as I indicated, most are never vested in the traditional sense, and are even lower than standard capital gains.

Stock grants (RSUs, like Google gives out) are taxed as ordinary income at the moment they vest.

If you sell them immediately, then you don't pay any additional capital gains tax, because there were no capital gains from the moment you got them to the moment you sold them.

If you hold on to them, you will eventually pay capital gains on any increase in value from the moment they vested until the moment you sell them.

Perhaps, once they are vested, you could take loans against them, to get some cash while avoiding selling them.

But no matter what, they are taxed at the moment you receive them, and again at the moment they leave your possession.

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