The super-rich in Silicon Valley are up in arms over a provision in the new Senate tax reform proposal which seeks to dramatically change the way stock options are taxed.
In the Senate Republicans’ proposed Tax Cuts and Jobs Act, stock options given to company employees will be taxed when they vest, meaning when the employees earn the right to exercise the options.
Profits on the stocks can’t be pocketed by employees until they fully exercise the options after a vesting period. The current law taxes only when the employees actually exercise their options.
The Senate’s tax reform provision was introduced last week in response to the original draft from the House of Representatives. The House bill allows employees to defer taxes on their exercised stock options until there is a liquid market to sell them, a proposal warmly welcomed in Silicon Valley.