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OpenAI and Anthropic employees face a tax bill most won't see coming

First-time millionaires often forget their IPO earnings come with significant tax exposure. California also stands to benefit from the coming windfall

SeongJoon Cho / Bloomberg via Getty Images

When OpenAI and Anthropic go public, their employees will face a tax system designed to take its cut before the windfall arrives. Most of those employees have never earned enough to encounter the parts of the tax code that apply to stock compensation, and the surprises start well before anyone sells a share.

The two companies are expected to go public later this year or early next, and the IPOs could create about 12,000 new millionaires. For most, the events will trigger federal and state tax bills — as well as a withholding shortfall — on wealth they may not be able to touch for months.

The federal government taxes stock grants under rules most employees have never encountered. California, where most of these prospective millionaires live, collects its own share, and employers routinely withhold far less than what's owed. All of that leaves employees to make up the difference on their own.

The federal tax trap hiding inside stock option grants

Most tech employees receive stock compensation in one of two forms. The simpler kind is taxed the moment an employee exercises it. The difference between the company's discounted price and the stock's current value is treated as regular wages, and the bill is immediate. Incentive stock options........

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