- Members of the tech community were concerned about a provision in the Senate’s tax bill that would have taxed stock options as soon as they vested.
- Many thought the tax bill as written would harm the growth of tech startups in the US.
- In a win for tech startups and VCs, the Senate removed the provision from the latest version of the bill on Tuesday night.
Senate Republicans have removed a controversial portion of their tax reform bill Tuesday that would have taxed stock options and restricted stock units (RSUs) as soon as they vested, instead of when they are exercised.
The proposal caused an uproar earlier this week among tech VCs and entrepreneurs, who said it would stifle the creation of startups that often rely on stock options to attract talent. The proposal would have forced employees to pay taxes on the stock even if they never cashed it in. That would mean employers would likely try to attract talent with just salaries, meaning employees wouldn’t have the opportunity to enjoy the wealth created by startups. Today, employees only pay taxes on vested stock options after the options have been exercised.
Fred Wilson, a partner at Union Square Ventures, wrote on his blog Monday that the proposal would have “profound implications for those who work in tech companies and equally profound implications for the competitiveness of the US tech sector.”
Wilson encouraged members of the tech community to pressure Senators to take the provision out.
It looks like Wilson’s wish came true. The latest version of the Senate’s tax bill, which was released Tuesday night, now says the “nonqualified deferred compensation” portion of the bill, which caused the uproar, has been stripped out.