Lauren Hunt, Senior Advisor
Twitter laid off approximately 3,700 employees in early November as part of Elon Musk’s $44 billion purchase of the company. While no one likes to lose a job, many of the former “tweeps” are likely in the midst of receiving more money than they’ve ever had before.
That’s because Twitter, like most technology companies, pays a high percentage of compensation through stock awards. And when a publicly-traded company is acquired and becomes privately-owned, its shareholders including employee shareholders receive cash in exchange for their shares of stock.
Here’s an example of how a Twitter employee could benefit. The price of each share of Twitter stock ended up worth $54.20. An employee who held 10,000 shares acquired at the end of 2017 – when the share price was $21.70 – could receive a payout of $542,000 with an accumulated capital gain of $325,000 just from those shares. If they acquired more shares during the past five years, via vested stock or otherwise, they would receive an additional amount.
No question these layoffs are creating a lot of uncertainty. With a proper plan, these events can open up new opportunities that could help improve your career and your finances.
It’s important to take some time to set your financial priorities – particularly in light of receiving a significant windfall. Before deciding how to use your new-found cash, here are some tips to consider:
Additional taxes may be owed
While the company may withhold money for federal and state taxes when it cashes out your stock awards, it’s possible you may owe more depending on the amount and type of income earned and tax bracket.
For example, while the company may take out 22 percent of any stock award income payout for federal income taxes, if you earned more than $200,000, you may be in the 32% tax bracket or higher and owe considerably more money.
Liquidation of shares that were held outright are taxable at either long-term capital gain or ordinary income tax rates based on the holding period of the shares. It may be worthwhile to speak with an accountant or tax advisor to find out more, since there may be no withholding on the capital gain income.
Consider paying down debt
Before starting a new job, it may make sense to pay off car, home equity or student loans. It’s important to avoid any impulse purchases. For example, buying an expensive vehicle or home could easily take money away from other needs and jeopardize the ability to retire on time. Less debt will provide more flexibility as you move forward and free up money for long-term investments.
Start or replenish an emergency fund
According to news reports, Twitter workers are typically paid at least two months’ salary and the cash value of equity they were scheduled to receive within three months of a layoff date. While this money can help pay bills until starting a new job, look to set aside some of it to establish or add to an emergency fund to pay for future unforeseen events, such as car and home repairs.
Consider starting or adding to a diversified investment portfolio
This one-time windfall of cash is a good time to consider adding money to your investments or developing an investing strategy with long-term goals in mind. Again, it makes sense to take some time to determine how much should be invested. However, with stock prices still off record highs by double digits, now may be a good time to invest a portion of your proceeds to take advantage of these low prices.
If you are a former Twitter employee and would like to discuss how to use funds from your stock payout, feel free to contact me at LHunt@monetagroup.com. We offer a free consultation to discuss your financial goals and how we can help build a long-term investment strategy for you.
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