Mark Zuckerberg, tech giant and founder of the social networking site Facebook, will be delivering the U.S. government quite a paycheck this April. His total owed for taxes will be in the vicinity of $1.1 billion.
This staggering tax hit will be levied on Zuckerberg because of a move he made last May to increase his stake in Facebook. He exercised a stock option and was able to purchase 60 million shares of his company for a "strike price" of 6 cents each.
Based on the amount of stock he now owns, Zuckerberg will have to report income on $2.3 billion alone this year. That sum will be reduced by the 2012 federal tax rate of 35%, as well as California's tax rate of 13.3% (which is the highest in the nation), for a grand total of 48.3% of his income going directly to taxes.
"With numbers that large, it's usually capital gains, not ordinary income," says Toby Johnston, who works for Moss Adams LLP.
Of course, the $1.1 billion number is just an estimate. The true number is of course, kept between Zuckerberg and the government.
Unsurprisingly, the founder of Facebook was well-prepared for such a tax hit, and got together funds last year to cover his bases. During the highly-discussed Facebook IPO in May, Zuckerberg sold 30.2 million shares of his stock to garner in over $1.1 billion, presumably to pay for his expected tax hit.
As if he hasn't already paid the government enough, Zuckerberg still has 60 million unexercised options in Facebook stock that expire in 2015. Should he go ahead and cash those in, he would have around $1.6 billion in reportable income. At the current tax rates, that would be roughly $826 million he would have to pay Uncle Sam.
Don't feel too bad for Zuckerberg though.
"Most people are thrilled, to tell you the truth," said Stan Pollock, a San Francisco area accountant "I have had very few clients that get these huge windfalls who have resented paying the tax. They know they got lucky."
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