WASHINGTON, DC – The National Venture Capital Association (NVCA) issued the following statement today after the House Ways and Means Committee passed H.R. 5719, the Empowering Employees through Stock Ownership Act.
“Bipartisan approval by the Ways and Means Committee of this important bill is welcome news for the entrepreneurial ecosystem and startup employees across the country who are unfairly penalized with tax liabilities on vested stock but no liquid market to sell those shares to meet their tax obligations,” said Bobby Franklin, President and CEO of NVCA. “Allowing for an additional period of time for employees to defer taxes on exercised stock options is a common sense solution to this challenge that will encourage more talented individuals to help build the next generation of great American companies. We thank Congressmen Paulsen and Crowley for their leadership and commitment to avoiding a startup brain drain by preserving the value of stock options for employees, and look forward to working with them to pass this bill into law.”
A critical tool to build top-flight teams at young startups, stock options are used as compensation to recruit and retain talent with the promise that if the startup succeeds, everybody shares in the gains. However, with companies choosing to stay private longer, startup employees are being forced to pay taxes on income arising from exercised but illiquid stock options. This has given rise to challenges for employees at our nation’s startups when their stock options vest without a liquid market to sell their shares in order to pay the taxes that are due.