For the Lyft employees that got RSUs and were already over the vesting cliff how did taxation work? Was it sell to cover based on the IPO price sold to the underwriters?
Have gone through this with RSUs at another company, Lyft was likely the same. Depending on how the structure is setup, most companies do double trigger vesting, this means that your stock does not actually vest when you hit your cliff, it also requires a liquidity event, in the case of Lyft, liquidity was IPO. At IPO day, all bested shares would count as income at IPO price, Lyft case being $72/share. Your tax burden would be calculated and the correct number of shares, say 40%, would be sold to cover your taxes. RSUs are far easier to deal with tax wise than options. When they vest, the full price on day of vest is taxed as regular income
in this case the stock price decline will hit employees hard right. since rsus are withheld at the supplementary rate of 22% but people most likely are paying closer to 40% in tax. so your rsus are withheld at the $72 but after the lockup expires and the stock price has dropped further, you will need to sell more shares than expected to pay the remaining tax. worked example: you have 1000 shares which are worth 72k at ipo. they withhold 25% so you actually have 750 shares. you have to pay 28.8k in tax but 18k is already withheld for you so you need to write a check for approximately 11k. let’s assume the stock price is 50 when the lockup goes and you are in the trading window and you sell stock to cover your taxes. you sell another 220 shares to raise the 13k for taxes. now you’re at 530 shares at 50 each for a valuation of 26.5k
The stock that IPO’d is vested, you have to pay for that. Now it’s like any other investment. If it goes poorly and drops, that’s a capital loss. You can claim that on your taxes to lessen the blow.
Wouldn't they vest after lockup period ? p.s I will be interested in knowing this as well. It would be great if someone could explain with an example like If someone accepted the offer with RSUs at 50 dollars. The ipo price was 100 and when the employee's stocks vested the RSU was at 40. How will the tax be calculated given that he was given 10,000 RSUs at the time of the offer.