Uncle Sam, California Benefit From Facebook Employees’ Stock Windfall

By Justin Lafferty 

On Monday, rank-and-file Facebook employees will be able to sell their stock, which officially came to fruition Thursday. Collectively, the roughly 225 million shares are worth about $5.2 billion, based on Wednesday’s closing price of $23.23 apiece. But it’s not just Facebook employees who are excited for a potential sell-off — the federal and California governments stand to profit from this, as well.

As CNNMoney notes, Facebook employees will be heavily taxed:

Unlike stock options, which traditionally carry a “strike” price at which recipients can purchase shares, restricted stock units are granted outright at zero cost to employees. The IRS taxes RSUs as ordinary income on their full-market value as of the day they vest.

Employers are required to withhold taxes when they settle RSUs. For many at Facebook — whose windfalls can easily reach into the millions — that will mean paying taxes at the top income tax rate. That’s 35 percent this year for federal taxes. California, where most Facebook employees live, levies an additional 10.3 percent tax on individual income over $1 million.

Luckily, Facebook plans to pay the tax bill — an estimated $2.3 billion — by withholding 101 million of its employees’ 225 million shares.

CNNMoney notes that if a large amount of employees sell their shares Monday, the overall value could likely drop.

Readers: What would you do if you were a Facebook employee — sell or wait for the stock to rise?

Image courtesy of Shutterstock.