They didn’t claim their federal tax liability was 40%; they claimed they were paying 40% total tax rate on the acquisition-related income, something which is true for most employees in most states for many acquisitions.

I’m aware, but I don’t see how that has a relevance to discussion Netflix’s federal income tax liability. My point was people in these comments are throwing out personal tax liability figures for comparison including various things such as state taxes, social security, Medicare, which makes things not very comparable.

Because people are people and not math proof generation engines.

Someone worked hard, achieved an intermediate goal that they hoped was going to move them one rung up the economic ladder only to find out that taxes took a much larger bite than they’d hoped or previously considered. So, they’re naturally discouraged to read about some big company somewhere paying a much lower overall rate while comparing it to their own.

Perhaps the real question is why the authors of these articles don’t put everything into terms more directly relatable to the people reading the article? That’s because doing so makes for less outrage-sharing of the article.

Yep, total tax rate.

If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax).

If it's paid out as some sort of investment income not subject to long-term capital gains treatment (e.g. interest, non-qualified dividends), then your top federal rate is 40.8% (37% regular, 3.8% net investment tax).

That does assume $500k of taxable income not counting the payout we're talking about here, to hit that 37% tax bracket.

If you have kids, you can hit these sorts of marginal rates at lower incomes too, because of the 5% marginal tax rate from the child credit phaseout.

I should note that money is fungible, so the fact that some of this is claimed to be "medicare" tax and some is claimed to be "income" tax is irrelevant to both the person paying the tax and the government collecting the tax. Medicare is not funded solely by the "medicare" tax in practice, so the fact that there's a separate tax is more or less an accounting oddity.

>> If it's paid out as ordinary (W-2) income, then your top federal tax rate right this minute is 39.35% (37% regular tax, 1.45% medicare tax, 0.9% medicare surtax).

There is also state tax, which can be significant (double digits), esp for top brackets.

Indeed. That varies widely, though, and corporations are subject to it too, with its own weirdnesses, so I was trying to stick to apples-to-apples federal tax comparisons.

I does vary widely, but the weighted majority of all such cases are in California (and NY might be next.) Those two states happen to have among the highest state taxes also.

Consider this: Where were the last 20 major IPOs? The last 20 major acquisitions? Where were the founding teams (i.e., the ones with the most stock facing such issues.) ...I'll bet 80% or more of these were in CA. I'm only pointing this out because once you're a super-successful startup and you've gone thru all the steps for a successful liquidity event, there is the final bath of taxes :-/