Senate Finance Committee Chairman Orrin Hatch removed a provision from the Senate tax bill that proposed taxing stock options on the date they vest instead of when they are cashed in.
WASHINGTON — A revised U.S. Senate tax bill has ditched a change in the treatment of stock options after an outcry from technology startups.
The original bill released last week proposed to tax stock options on the date they vest instead of when they are cashed in. Technology startups such as Hyperloop One, Airbnb, Uber and Vimeo complained that the change would make it harder for them to attract employees.
More than 600 startups, venture capitalists and technology executives signed onto a letter Tuesday to Senate Finance Committee Chairman Orrin Hatch (R-Utah) urging him to remove the provision.
Late Tuesday night, Hatch released a revised tax bill that did just that.
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In addition, the revised Senate bill now includes language from the Empowering Employees Through Stock Ownership Act, proposed last year by Sens. Dean Heller (R-Nev.) and Mark Warner (D-Va.) that would give employees new flexibility on paying taxes on stock options if a company offers them to 80 percent of its workforce.
“Startups rely on stock options and other stock-based incentives to offer competitive compensation in a market where large and incumbent firms can easily pay higher salaries,” Engine, an advocacy group for technology startups that organized the letter to Hatch, said Wednesday.
“The changes to the Senate tax plan go a long way to promoting startups and job creation across the country,” the group said.
The change in the tax treatment of stock options in the original Senate tax bill would have produced about $13.4 billion in additional federal tax revenue over the next decade, according to an analysis by the congressional Joint Committee on Taxation.
But the provision would have been a problem for employees of startups, who often hold on to their options, hopefully until the value rises with the growth of the company. Employees could have faced large tax bills before they realized the income from cashing in the stock options to pay them.
A similar stock-option tax change was in the original version of the House Republican tax bill, but the provision was removed last week.