Washington —
TechNet, the national,
bipartisan network of innovation economy CEOs and senior executives, today applauded
the House Ways and Means Committee
for approving legislation that would make it easier for startups and businesses
to give employees an ownership stake in their company’s success by awarding stock
options.

The Empowering
Employees through Stock Ownership Act (H.R. 5719) was introduced by Reps.
Erik Paulsen (R-MN) and Joseph Crowley (D-NY) in order to remove burdensome tax
implications that have made exercising stock options impractical for many
employees of startups and non-public firms.
Stock options are an important tool for rewarding employees and
increasing their compensation, and this legislation would give employees new
flexibility in handling their tax obligations.

“There is nothing more
important to America’s economic future than the growth of our startup community,”
said Linda Moore, TechNet president and CEO. “TechNet
applauds the House Ways and
Means Committee for approving legislation that will accelerate job creation and allow
startups to properly reward employees for their hard work.”

The Empowering
Employees through Stock Ownership Act will:

  • Reduce the barrier to exercise stock options: The legislation
    extends the time period in which employees are required to pay tax upon exercise
    of stock options or Restricted Stock Units (RSUs) that are settled for stock up
    to seven years. The amount of tax the employee
    can elect to defer is calculated in the same manner as under current law: the excess
    of the fair market value of the stock, over the amount the employee pays for the
    stock.
  • Promote broad-based employee ownership: To qualify
    for the deferral of income tax, the company is required to grant options to 80 percent
    or more of its employees on an annual basis; must offer employees stock options
    on similar terms; and the stock cannot be traded on an established market. The legislation is not intended to benefit the
    most compensated employees or the largest owners of a company. Individuals who own one percent or more of the
    company and those who control the company, such as the Chief Operating Officer,
    the Chief Financial Officer, and the four most highly compensated officers, are
    not eligible.
  • Require employees to be fully informed: There
    may be instances where the stock price of the company declines after the employee
    elects to defer income tax liability. It
    is critical that employers provide employees with information, through a written
    notice, on the tax consequences of this election, and failure of the company to
    provide a notice to an employee will result in a penalty.
  • Use existing administrative tax rules and provide worker
    flexibility:     Similar to other tax elections in the stock options
    space, the employer will be required to report the future tax liability on the employee’s
    Form W-2. Once the employee has the cash
    to pay the tax, a tax deferral is no longer permitted. In other words, if stock of the company becomes
    readily tradable on an established market, or the employee decides to sell or transfer
    part or all shares to another individual before the seven-year time period ends,
    the employee will have to pay the tax. The
    employee can also decide to revoke the deferral and pay their income tax at any
    point.

A copy of
the bill text is available here.

About TechNet
TechNet is the national, bipartisan
network of technology CEOs and senior executives that promotes the growth of the
innovation economy by advocating a targeted policy agenda at the federal and 50-state
level. TechNet’s diverse membership includes
dynamic startups to the most iconic companies on the planet and represents more
than two million employees in the fields of information technology, e-commerce,
advanced energy, biotechnology, venture capital, and finance. TechNet has offices in Washington, D.C., Silicon
Valley, Sacramento, Seattle, Boston, and Austin.