Legislation recently introduced by U.S. Rep. Erik Paulsen (R-MN) aims to promote employee ownership and encourage innovation at startup companies.
The Empowering Employees Through Stock Ownership Act, H.R. 5719, would enable startups to defer taxes on stock options in employee compensation packages to make it easier for employees to exercise those options.
“This bipartisan legislation will grow startup small businesses by helping make these jobs more attractive to top talent and empowering their employees,” Paulsen said. “Startups and small businesses are the lifeblood of the American economy, and this commonsense fix will accelerate entrepreneurship and innovation.”
Employees who exercise stock options or equity interests in a startup are currently required to pay taxes on them up front, and they often don’t have the cash on hand to do so. The Empowering Employees Through Stock Ownership Act would enable startups to defer up-front tax payments to make stock options and equity a more viable option for employees.
Under the bill, stock would not be considered qualified for deferral if the employee is able to sell to or receive cash in lieu of stock from the corporation when the rights of the employee become transferrable.
U.S. Sens. Mark Warner (D-VA) and Dean Heller (R-NV) introduced companion legislation in the Senate.