[gonehome]

Yes, thanks for the clarification.

My understanding is they're taxable, but only after they're liquid which makes it easier for the employee. I think most companies doing FB style do something fancy to avoid the distribution tax lockout issue (witholding some to cover tax or direct listing to avoid lockout).

The situation where you have a huge tax bill and no cash to pay it (or worse a huge tax bill and your illiquid stocks have crashed to $0) shouldn't happen, though I guess there's still a chance in the pathological case you describe? Not sure if that's avoidable.

The other thing I forgot to mention is that if you do risk all this cash on option exercise/taxes and your company does go to $0 you do get to take a $3000 AMT tax credit each year until you die (but maybe only if you don’t have kids or something, can’t remember) - it’s not great.

[junar]

Actually, underwithholding can still happen. Employers may withhold at a flat 22% federal rate, which can be significantly lower than a highly paid employee's actual marginal tax rate. So the employee may still need to increase the withholdings on their regular pay, or make an estimated tax payment for each quarter of RSU income.