Indeed. In a large exit, this could more-than-halve what employees net, moving the proceeds from a 15-20% long-term capital-gains rate up to a 35-40% regular-income rate.
Yes, I mispoke, and should have said 'more-than-double what they pay in taxes', rather than talking about the net.
In a max-tax scenario (high-tax state like California, expiration of the Bush tax cuts in 2013), the bulk of a large exit would be taxed at about 53% if ordinary income, but only about 33% if long-term capital gains treatment can be obtained. So they'd be netting about 30% less due to the 'bonus' approach rather than equity.
(I'm counting medicare tax, which no longer phases out any income, but not social security, which isn't collected on income over ~$107K.)
If it is taxed as W2 income, you also need to pay social security and medicare, another 7.65%. State taxes may also differ, if the state has a separate capital gains rate. Also, the max federal capital gains rate is 15% as far as I know.
