Preparing for the Airbnb IPO
Welp, today was exciting. The S-1 was finally made public, and the IPO seems to be a go. (It is not, to be sure, a guaranteed thing until I see that ticker on NASDAQ.)
If you are an employee or former employee, you received a bevy of information today. Airbnb seems to be taking really good care of you, in my opinion, both in how the IPO is working and in how they’re organizing and prioritizing the information for you.
All of this information appears to apply to both current and former employees, with the exception of the Employee Stock Purchase Plan (w00t!), which applies only to current employees.
Last Updated: November 16, 2020
Your First Year
This is our core process.
Your RSUs, assuming they have passed the service/time requirement, will fully vest on IPO day. And you will be taxed on them on that same day, as ordinary income.
You need to make a tax-withholding decision by December 1.
Typically, taxes are withheld on RSUs at 22%. This will be far too low for you this year (and most years). Airbnb is allowing you (and I am grateful they are!) to choose to withhold 37% of your vesting RSUs for taxes.
I recommend you withhold 37% of taxes, unless your CPA says otherwise. You can do this at www.myairbnbequity.com.
If you recall, our IPO sales strategy is, at a minimum, “Sell enough RSU shares ASAP to fully cover the tax liability.” 37% might not be enough to fully cover your tax liability, but it’s a hell of a lot better than 22%.
By selecting 37% instead of 22%, you reduce your risk two ways:
- The risk that you’ll need to pay more in taxes than what is automatically withheld, but be in the lockup and therefore unable to sell additional shares for the necessary cash. How would you get that extra cash?
- The risk that the stock price will fall (remember Uber’s IPO?) from IPO Price, and you’ll end up selling your RSU shares later at a price lower than what you were taxed at. Never a good feeling.
Interesting to note that this S-1 changes the vesting schedule for your RSUs! Your RSU grant docs indicated that February 25 of next year would be the earliest your RSUs would vest. Now they’re vesting on IPO day. Thankfully, with the ability to withhold more taxes, this is a good thing, not a bad thing.
(I’m seeing some clients who are current employees receiving emails from Airbnb offering the ability to withhold more taxes at the state level. Again, we generally would recommend this opportunity to reduce your exposure to Airbnb stock and not put your ability to pay your taxes at risk. And again again, work with your CPA to get the last word on this decision.)
Airbnb’s lockup period isn’t traditional, and that’s in your favor: You don’t have to wait 6 months from IPO day in order to sell any of your shares. You have earlier opportunities:
- Immediate opportunity to sell: In the first 7 days of trading, you will be able to sell up to 15% of (vested RSUs + exercisable options + owned stock).
It looks like Airbnb will be calculating for you how many shares this means you can sell. (Palantir did this same sort of thing when they went public via direct listing in September. Hopefully Airbnb makes it as clear as Palantir did for its employees.)
This ability to to quickly reduce your exposure to Airbnb stock (because so much of your net worth is tied up in it) is good. Thank you, Airbnb.
- Possible opportunity to sell more: Early March-ish, you could have another 7 days in which to sell shares. If the stock price doesn’t perform well enough after IPO, you won’t be able to sell at this point.
- Lockup ends: In May/June, the lockup expires and trading will open for good. Current employees will still have to abide by “normal” trading windows (the timing of which is tied to the release of quarterly results), so you won’t be able to trade for long periods of time each quarter.
Looks like you’re going to have an Employee Stock Purchase Plan. And a good one at that.
- You’ll be able to purchase shares at 15% off market price.
- You can use up to 15% of your income to do so.
- They’re giving you a lookback, anywhere from 6 to 12 months. This is great. If Airbnb stock price rises from $100 to $150 over the course of 6 months, you could buy a share of Airbnb stock for $100-15% = $85 when the stock is worth $150. Suh-weet.
This is close to the best program I’ve seen. The only improvement I’ve seen elsewhere is a longer lookback.
(Note that an IRS restriction on ESPPs means you can only buy $25k worth of stock per year via an ESPP, so you might hit that cap before you hit the 15%-of-income cap.)
Enrolling in the program
You’ll be able to enroll in this after the company goes public. You must make your withholding election (i.e., what % of your income) in Fidelity within 14 days after the IPO.
We can discuss it with more nuance later, but we generally recommend clients max out participation, unless you’re really strapped for cash and can’t reasonably take a temporary reduction in your take-home income.
You won’t have to worry about owing taxes for the plan for 6 months. There is basically no downside (as long as you sell the shares right after you purchase them at the discount).
If you are not already working with a CPA, hie thee to one quickly! 2020 and 2021 are gonna be a craaaazy ride for you.
Year-end is traditionally a very busy time for CPAs, and this IPO madness is just making it all the more so. Let us know (quickly) if you need us to hook you up.
Please note that Airbnb has said it has “engaged Deloitte Tax to perform tax calculations for all employees who have moved…between states in the United States. They are calculating the amount “earned” based on the transfer dates that are in Workday.” The tax story of 2020 is this inter-state move during quarantine. Which state do I owe taxes to? More than 1? Even with Deloitte Tax contributing this analysis, we still highly recommend working 1-on-1 with a CPA (and us, of course).
We sent out an email earlier this month, talking about giving to charity in 2020.
2020 is going to be a very good year, tax-wise (and hell, need-wise) to give to charity. Your RSUs are vesting this year, which will boost your income and tax rate. 2021 will also likely be a high-income/tax rate year for you, too. Your CPA is going to be best suited to identify the best year to donate (and can even help us figure out the right $ amount).
You can donate cash up until midnight Dec. 31.
If you want to do anything like set up a Donor Advised Fund or donate appreciated Airbnb stock directly to a charity, that can take weeks. Setting up a DAF basically has to happen now.
So, if you were waffling, Now Is The Time to decide about charitable giving.
I know it’s too easy to get overwhelmed by all the deserving causes, or to fear that most charities will squander too much of your money. If I may be so bold: consider giving to local charities. I know, for example, that Bellingham’s food bank is tremendously effective, and I get an up close and personal look at the good they do because I live in this community.
I love that Airbnb is giving you an entire document about larger considerations, tactics, and resources. Note that in that document, they mention several programs—both internal and by alumni—already in the works.