Startups, Investors Warn About Proposed Tax Change

More than 500 startups, investors, and innovators wrote to lawmakers this week, warning about the devastating consequences of a proposed tax change that could hurt small companies competing for talent.

The proposed change to Section 409A of the Tax Code -- floated as part of the Senate Republicans’ tax reform bill -- would tax employees’ stock options when they’re vested instead of when they’re exercised, effectively forcing employees to pay a tax on an asset before they actually get any income from it.

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. Allowing employees at all levels to share in the company’s risks and rewards, and many employees use profit from the proceeds of one company’s stock options to create new companies.

As we wrote in the letter to Senate Finance Committee Chairman Orrin Hatch, “This will put startups—which are responsible for all net new job growth— at an insurmountable disadvantage” and “will reduce competition, innovation, and job opportunities.”

Read the full letter here.