Facebook CEO Mark Zuckerberg could face massive $2 billion tax bill

By Lee Kaelin on February 8, 2012, 9:30 AM

Facebook’s much publicized IPO will make founder and CEO Mark Zuckerberg a billionaire, but it could also land him with a staggering $2 billion tax bill as a result of his plan to exercise stock options that would increase his number of Facebook shares.

The 27 year old founder of the world’s largest social networking site currently owns around 414 million shares in Facebook, but also holds options to buy a further 120 million shares at the previously agreed bargain price of 6 cent a share.

Paperwork for the imminent IPO reveals that Zuckerberg plans to purchase those 120 million shares, and then sell some in order to pay off the tax bill. Because the share options he has are seen as ordinary income he will have to pay tax on the difference between the purchase price of 6 cents a share, and the market value of them on the day he exercises them.

The highest marginal tax rate in the US currently is 35 percent, coupled with the founder's home state of California also taking an additional 10.3 percent to its coffers from those earning $1 million or above per year. This means he will be required to pay 45.3 percent of the difference in stock value, estimated to be somewhere in the region of $1.5 billion to $2 billion.

Facebook’s IPO filing currently values each share at $29.73. On those figures alone it would net Zuckerberg $3.6 billion. Most analysts expect the shares to fetch a much higher price when sold to the public though. Just last week a private market trade sold 100,000 of them at $40 a share.

It could well be his last personal tax bill however, as he plans to pay himself just $1 a year salary as of next year, a move the board has also agreed to. The staggering tax bill alongside other stock related expenses for the company will see Facebook show a net operating loss for this financial year, qualifying the firm for a part refund which could run as high as $500 million of the taxes paid on its $1 billion profit last year.




User Comments: 17

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Guest said:

I feel his pain, paying 1.5B$ and getting 3.5B$ in his pocket, wow I would hate to be him. Poor guy.

LinkedKube LinkedKube, TechSpot Project Baby, said:

Not even sure why anyone would be surprised of this.

Ranger12 Ranger12 said:

Because the popular opinion amongst young Americans seems to be that the rich don't pay their "fair share". It might surprise some that this guy, though rich, still has to give up nearly half what he makes to the government, who's gross ineffiencies will squander the majority of that money.

SeiveD said:

Ranger12 is dead on. I've always found that argument ridiculous, especially because tax rates are generally percentages. If a so-called rich guy is making 10 times as much as you, but has the same tax rate, he's still paying 10 times as much as you in taxes. Why is it only fair if he makes 10 times as much as you but pays 20 times as much in taxes?

I also agree with the second point, the government is horribly inefficient. Money is far better off being in the private sector than with the government.

Raswan Raswan said:

Ranger12 said:

Because the popular opinion amongst young Americans seems to be that the rich don't pay their "fair share". It might surprise some that this guy, though rich, still has to give up nearly half what he makes to the government, who's gross ineffiencies will squander the majority of that money.

Except for there's no way he regularly pays (or has paid, or will pay) nearly half of what he actually makes makes in taxes. The article explicitly says he's going to pay himself 1 dollar next year; like many other super-rich people, he'll make his money in retained earnings. So he might be paying 28% income tax, but it'll be on an income not of three billion or even three million, but three hundred thousand (or whatever). The point is, simply spouting numbers does nothing to tell the real story, and shows as much understanding of the tax system as your assertion that the government's "gross inefficiencies (corrected your spelling there--you're welcome) will squander the majority of that money."

dms96960 said:

"The highest marginal tax rate in the US currently is 35 percent, coupled with the founder's home state of California also taking an additional 10.3 percent to its coffers from those earning $1 million or above per year."

If he is so smart, why didn't he move to, say, Nevada, or Texas, or some state with a lower tax rate before this happened?

igotdembombs said:

Big numbers impress me very easily. Especially when those numbers describe one person.

Ranger12 Ranger12 said:

Raswan, I think we an both agree he will be paying capital gains taxes and not retained earnings taxes. The capital gains tax rate is indeed lower than the income tax rate you and I pay. This is to encourage those with large amounts of money to keep investing which grows businesses and creates more jobs. This benefits us as well. I agree the current tax system is a mess. I'm an advocate of a consumption tax or something like te Fair Tax.

Really, I don't think anybody truly believes government is an efficient entity so I'll ignore that objection.

Relic Relic, TechSpot Chancellor, said:

dms96960 said:

If he is so smart, why didn't he move to, say, Nevada, or Texas, or some state with a lower tax rate before this happened?

Because he is alright with paying at that rate, and if I'm not mistaken is even cool with a tax increase on the 'uber' wealthy. Pretty sure he also pledged to give the majority of his fortune away over his lifetime like Buffett and Gates.

@Ranger This 'young' American wants capital gains taxes to return to pre-Bush levels which seemed to work just fine.

raybay said:

Zuckerberg's lawyers and tax accounts went over this in detail long before they took any action... probably planned for it, years in advance. You can guarantee that Zuckerberg will come out as well as possible... and certainly better than the taxes you and I would pay.

Ranger12 Ranger12 said:

True, I was surprised when Obama extended those tax cuts. Although when they do run out its not like income tax payers are going to pay less and seeing as congress can't pass a budget much less balance one I'm not inclined to hand over more cash to them. Buffet, Gates, and now Zuckerburg can much more efficiently distribute there wealth themselves, if they choose to do so.

lipe123 said:

Yet another great example of the amazingly fair tax system at work! I think everyone in the world should talk to their employers and get a 1$ /year payment with incentives and a bonus here and there.

Tax breaks for everyone!

MilwaukeeMike said:

It won't be his last tax bill... he just won't be paying any tax on his salary. If he sells any more stock in the future he'll pay tax. If he makes any money on any other investments, he'll pay tax. The govt makes you pay anytime you receive money, just because it doesn't come in the form of a paycheck doesn't mean he won't be taxed.

And lipe123... if your employer paid you far less, but let you live at work and fed you for 'free', then you could avoid some taxes. Problem is, most of us like being compensted with money. Zuckerburg has so much already he doesn't need a salary. It's a dumb popularity stunt to avoid anyone pointing a finger at him and screaming 'RICH CEO'

Guest said:

many options here, imho he should just buy a politician or two, they come quite cheap these days, pass a ''cool'' law and save hundreds of millions.

Guest said:

Anyway the divine job creators should never be taxed, that at least is understood in the USA.

Guest said:

And orthodox communism has no income taxes. Should he have move to a communist country?

Rasta211 said:

He should just take all his money and run. Screw the government!

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