Facebook co-founder Mark Zuckerberg is facing a tax liability of $1.5 billion this year. This makes him one of the highest taxpayers. The taxes will fall due to the vast profit of about $5 billion that Mark Zuckerberg plans on taking from stock options he was given in 2005 for acting as Facebook’s CEO.
Facebook said that Zuckerberg would exercise his options before its IPO. The IPO is expected to happen in May. He will sell enough shares in the IPO to cover the tax bill on his profits. Zuckerberg has supposedly never sold any of his shares in the company.
Zuckerberg’s stake in Facebook is worth about $22 billion. This would also be taxable as capital gains. The portion that is tied to his options will appear as regular income in his personal tax return.
Zuckerberg needs to sell his shares to cover his personal tax bill. The IPO is expected to raise $5 billion for the company, which is half the amount that Wall Street was expecting. However many companies begin with a low figure in order to stimulate interest among investors. Zuckerberg options will be taxed at the top U.S. marginal income tax rate of 35%. Zuckerberg will also pay a tax of 10% on the profits to the state of California. He can deduct that from his federal bill.
It will cost Zuckerberg about 6 cents per share to exercise his 120 million options according to the filing that Facebook made this week. This means that there will be a gain of about $4.8 billion. The profit would rise to $6 billion if the company hits a $100 billion valuation.