Assuming Twitter’s projected share price of $26 holds down the line, non-executive employees could be on the hook for about $966 million. That’s an average of $420,000 from each of the firm’s roughly 2,300 employees.
Twitter has issued its non-executive employees “restricted stock units” as a form of compensation for several years which, after an IPO, essentially become stocks with restrictions on how soon they can be sold, says Adriana S. de Lozada, a senior analyst at PrivCo Media, a private company research firm. They’re an innovative way to incentivize workers to stay involved, linking their fate with that of the company. But as soon as the RSU becomes a stock eligible to be sold, it also becomes taxable income.
At this point, according to Twitter’s updated S-1, the company has issued 92,860,555 RSUs. Twitter projects at least a 40% income tax on employees holding RSUs that become eligible for sale, so in the hypothetical in which the RSUs all were to vest at $26 a piece, employees would owe in total a whopping $965,749,772 in taxes, Lozada points out.
Many RSU holders don’t have to worry about taxes quite yet because most if not all of their RSUs won’t vest for months or years—depending on how long they’ve been at the company. But Twitter will let employees sell some stock beginning Feb. 15 to ensure that those that do face taxes can pay their taxes, according to the S-1.
The company also said in its S-1 that it is considering spending about $113.8 million to cover employee tax obligations while withholding some shares (that price estimate was based on a share price range of $23 to $25, since raised to $26). That process would be much like a company withholding part of an employee’s wage to cover his or her taxes.
Facebook was an early pioneer of RSUs, which have since become common across the start-up tech world. Before its much larger IPO in early 2012, that company said it would set aside $4 billion for employees.