The coming Facebook IPO is making waves in the investment world, as everyone tries to figure out how to make money from the social-media craze. One group of lucky people, however, is almost certain to hit it rich -- and they're even getting an extra benefit no one would have expected.
Back in the late 1990s, during the first Internet boom, stories about rank-and-file employees becoming millionaires simply by virtue of working for the right company at the right time were common. Now, as social media companies enjoy a similar level of popularity, many of their lucky workers will enjoy the same success.
This time, though, some of those workers are getting even more of a windfall. According to a Reuters report, Facebook plans to pay the income taxes that employees will incur soon after the company goes public later this year.
In addition to their regular salaries, at least some Facebook workers received what are known as restricted stock units, which let employees participate in the profits from a rising stock price. Workers have to wait for these restricted stock units to vest, but with vesting slated to happen six months after Facebook's IPO, that's when the windfall -- and the corresponding tax bite -- will occur.
Picking up the tab for employee tax bills could cost Facebook billions of dollars, depending on how Facebook stock performs after it goes public. It's not a typical thing for companies to do, but it does avoid one problem that hit Internet company employees a decade ago.
From Rags to Riches and Back Again
When Internet stocks were soaring, many employees received stock options that became very valuable. Even if the employees chose not to sell any of their shares, they often got slapped with tax bills that required them to pay income taxes on those options.
In the early 2000s, when the bottom fell out of the tech-stock market, some employees found themselves owing big tax bills based on share prices that no longer matched up with the actual value of their stock and options.
The episode took many workers from rags to riches and then back to rags as a result of bad tax planning.
With Facebook taking care of the taxes for workers, there won't be any chance of employees getting burned like their peers from a decade ago.
Of course, investors in the company may not be so happy about Facebook spending billions of their money paying tax bills for workers. But with quality tech workers in high demand, anything that keeps talent from moving on to the next big thing should benefit Facebook in the long run.
Why Facebook Is Paying These People's Tax Bills
Oct. 28, 2003: Mark Zuckerberg hacked into restricted areas of Harvard University's computer network to create Facemash, a website that pulled the private dormitory ID photos of students, then asked users to compare the pictures of two random students and chose which one was better looking. For the brief period before university administrators shut it down, it proved quite popular.
January 2004: Zuckerberg began to write the basic software to create a universal Harvard social directory, TheFacebook.
Jan. 11, 2004: Zuckerberg registered thefacebook.com domain. Then, on Feb. 4, TheFacebook launched at Harvard University. Mark Zuckerberg, right, and Dustin Moscovitz, co-founder, left; took a semester off in 2004 to further improve on TheFacebook website.
April 13, 2004: Zuckerberg, Dustin Moskovitz, and Eduardo Saverin formed Thefacebook.com LLC, a partnership.
June 2004: TheFacebook moved it's headquarters to Palo Alto, Calif., and received an investment of $500,000 from Peter Thiel.
June 2004: Thefacebook incorporated into a new company, and Sean Parker, a co-founder of Napster, took the job of president for the growing business.
September 2004: Facebook replaced its "User is..." prompt with a "What's on your mind?" question in the newly designed space for posting and sharing status updates called "The Wall."
September 2004: Harvard students Cameron Winklevoss and Tyler Winklevoss of ConnectU filed a lawsuit against Zuckerberg and other Facebook founders for allegedly stealing their idea for a college social network called HarvardConnection.
July 19, 2005: Then-dominant social networking site MySpace was acquired by News Corp., spurring buzz on the Internet about the possible sale of Facebook to a larger media company.
Aug. 23, 2005: TheFacebook dropped its "The" and became Facebook. Purchase price it paid for the Facebook.com domain name: $200,000.
September 2005: Facebook added networks for high school students. In December 2005, Facebook reached 6 million users.
2005: Artist David Choe began painting murals at the headquarters of Facebook in exchange for company stock. Today, the shares he received are worth an estimated $200 million.
2006: A cash flow statement was leaked showing that Facebook had a net loss of $3.63 million for the 2005 fiscal year.
Sept. 26, 2006: Facebook removed its restrictions and allowed anyone 13 and older with a valid email address to join. A news feed and a mini-feed were introduced, providing easier ways to see what your friends are up to.
May 2007: Facebook Platform launched with 65 developers and more than 85 applications. Third-party developers quickly followed, building applications to integrate with Facebook. Games such as Farmville and Mafia Wars spread rapidly.
July 25, 2007: A federal judge gave twin brothers Cameron (left) and Tyler Winklevoss, founders of ConnectU, and Divya Narendra until Aug. 8 to flesh out the allegations in their lawsuit against Mark Zuckerberg. Those charges included fraud, copyright infringement and misappropriation of trade secrets.
December 2007: Facebook reached 58 million users. With the successful addition of Facebook Platform and video, growth remained strong. Facebook charted a course toward becoming a general portal like AOL; meanwhile, the choice was made not to aim toward being acquired, as MySpace.com, YouTube and so many other tech startups were.
June 2008: Facebook settled two lawsuits, ConnectU vs Facebook, Mark Zuckerberg et al. and intellectual property theft, Wayne Chang et al., over The Winklevoss Chang Group's Social Butterfly project. The settlements effectively had Facebook acquire ConnectU for $20 million in cash and Facebook shares valued at $45 million, based on a $15 billion company valuation.
July 2008: The first Facebook iPhone app was released.
August 2008: News broke that some employees reportedly privately sold their shares to venture capital firms at prices that gave the company an implied valuation of between $3.75 billion and $5 billion.
October 2008: Facebook set up its international headquarters in Dublin, Ireland.
February 2009: The "Like" social plug-in was added, allowing users to follow status conversations without having to say anything. The like button was instantaneously a hit. It's initial purpose has been widely misinterpreted as a positive approval button.
August 2009: Facebook acquired FriendFeed, a real-time news aggregator.
September 2009: Facebook said that its cash flow had turned positive for the first time.
April 2010: Facebook announced the acquisition of photo-sharing service Divvyshot, and introduced Community Pages.
May 31, 2010: Quit Facebook Day was an online event where users vowed that they would quit the social network shortly after widespread criticism was received on the new privacy controls rolled out in mid-May. Zuckerberg publicly admitted the company had "missed the mark." An estimated 33,000 users quit the site.
June 2010: Facebook employees sold some shares on SecondMarket at prices giving the company an implied valuation of $11.5 billion
August 2010: Places launched, allowing users to share information about where they are in the real world, so friends can find each other.
Oct. 1, 2010:The Social Network, a film about the start of Facebook, was released to theaters. The film, directed by David Fincher, was met with widespread critical acclaim and won the Golden Globe and Critics Choice Best Picture for the Year. Mark Zuckerberg stated that the film is an inaccurate account of what happened.
November 2010: Facebook added features to its mobile software for Android devices. The number of users reached just short of 608 million, with mobile traffic increasing.
December 2010: TIME magazine named Facebook founder and CEO Mark Zuckerberg the 2010 TIME Person of the Year.
January 2011: Equity investors put $500 million into Facebook for 1% of the company, placing its implied value at $50 billion.
February 2011: Facebook added 'Civil Union,' and 'Domestic Partnership' to its Relationship Status options.
February 2011: Facebook application and content aggregator Pixable estimated that Facebook would host 100 billion photos by summer 2011.
June 2011: Facebook partnered with Skype to add video calling as well as a new group chat feature.
September 2011: Heroku joined forces with Facebook for application development using the Facebook Platform.
Sept. 22, 2011: Facebook debuted the new Timeline user interface at the F8 Convention.
October 10, 2011: Facebook launched its iPad app.
December 2011: Membership reached 845 million users.
December 2, 2011: New York Mayor Michael Bloomberg (left) Facebook Chief Operating Officer Sheryl Sandberg (center) and Sen. Charles Schumer (D-N.Y.), react during a news conference on the announcement that New York will be the center of Facebook's new engineering technology initiative.
December 22, 2011: Facebook launched the new profile user interface, Facebook Timeline.
January 24, 2012: Facebook announced that "Timeline" would become mandatory for all users.
Feb. 1, 2012: Facebook filed paperwork to go public, seeking to raise $5 billion on Wall Street in the largest flotation ever by an Internet company.
March 6, 2012: Facebook launches Messenger for Windows, which gives users of Windows 7 Facebook services without the need for a web browser.
April 9, 2012: Facebook announced that is will acquire the photo-sharing app Instagram for $1 billion USD.
May 18, 2012: Facebook founder, Chairman and CEO Mark Zuckerberg, center, rings the opening bell of the Nasdaq stock market from Facebook headquarters in Menlo Park, Calif. The social media company priced its IPO on Thursday at $38 per share, and beginning Friday regular investors will have a chance to buy shares.