There is a Bytedance share buyback on the horizon! If you are a US employee of TikTok, this is wonderful news for you!
ByteDance Share Buyback Details
If you own restricted share units (RSUs) of Bytedance, they will now vest as long as you have been an employee for the appropriate amount of time. ByteDance RSUs have a 4-year vesting period (15%, 25%, 25%, and 35%) and your employment length determines your ownership.
Previously, RSUs of Bytedance were “double trigger” meaning there were two requirements. First, employees had to work at TikTok for a certain number of years to meet the time vesting, and second, there would be a liquidity event, such as a sale or IPO.
Now with new time vesting of RSUs for the buyback, employees who have been waiting for an IPO can cash out their shares and put some money in their pockets. There is no need to wait for an IPO or company sale.
The Tough Decision
Sadly, every silver lining has a touch of grey. The time vesting of shares is now a taxable event, even if you don’t sell your shares. So what does that mean? You will have to pay taxes to the IRS. 🙁
Employees have two options for the buyback. One, pay the tax out of your own pocket. This can be expensive if you have a substantial amount of shares. For example, if you own $1 million shares, and are in the top federal tax bracket of 37%, you will owe $370,000 in federal taxes in April!
The second option is to withhold some shares to cover your tax bill. The company can do this for you, but you will own fewer shares. Keep in mind that the valuation of your shares is very important in deciding what to do.
TikTok’s valuation was around $400 billion in 2021. Now the company is valued at $220 billion. So there is a huge tradeoff and a very tough decision between owning fewer shares or paying more in taxes out of your own pocket.
Share Price Doubles Example
Here is an illustration showing the two options for the buyback, using the $1 million dollar share example from above.
Have the company withhold your taxes and own $630,000 of shares. If the shares double you will have $1,260,000 (pre-tax) worth of shares. The additional tax implications depend on your holding period. If less than one year, your tax is your ordinary income level and if held longer than one year, you will pay a lower long term capital gains tax.
Alternatively, hold onto all of your shares, $1 million, and pay $370,000 taxes out of pocket. If the shares double, you now have $2 million, pre-tax. The same tax implications apply as described above.
If you decide to hold onto all of your shares, you will keep an extra $370,000 (pre-tax) in your pocket!
Confused about what to do and how the ByteDance share buyback fits in with your overall financial picture? We can set up some time to chat and talk about what’s weighing on your mind.