Facebook Employees To Pay $4 Billion Tax

Facebook founder Mark Zuckerberg won’t be the only one collecting billions from Facebook’s initial public offering: Uncle Sam and the state of California are also poised to cash in big.

Tax collectors will be taking a giant bite out of the paper millions that thousands of Facebook employees will soon gain. The average tax hit: $1.1 million per employee.

That’s a very rough estimate, based on Facebook’s roster of just over 3,500 employees and its recent disclosure that it plans to set aside an eye-popping $4 billion to cover tax bills this year. For many employees, taxes will consume around 45% of their sudden wealth, Facebook said in its latest regulatory filing.

It’s a tax whack that experts say is unprecedented in both its timing and its scale.

“It’s virtually unheard of to have all these taxes due all at once,” says Sam Hamadeh, an attorney and the founder of private company research firm PrivCo.

Tech companies, even those not yet public, traditionally reward their employees with stock grants or options that vest over time. That means that employees come into their wealth gradually, on a staggered schedule.

But Facebook pioneered a new form of employee equity using “restricted stock units” (RSUs) that don’t turn into actual stock until there’s a “liquidity event” — in this case, the company’s IPO.

Facebook’s goal was to stay below a legal limit on how many shareholders a company can have before it’s required to publicly report its financial results. The tactic worked.