NSOs and SecFi tax implications - unexpected tax bill after option purchase

This is unfortunately a common misunderstanding with NSOs. When you exercise NSOs, the spread between what you paid ($6.75/share) and the Fair Market Value ($67/share) is considered compensation income and is subject to income tax. Your former employer correctly reported this as wages on a W-2. The "taxes paid" as part of the SecFi transaction were likely just the withholding required at the time of exercise, but this often doesn't cover your full tax liability, especially if you're in a high tax bracket or have other income sources. The withholding is typically only at a flat 22% federal rate for supplemental wages, while your actual tax rate could be higher. You should gather all documentation from both SecFi and your former employer showing exactly what was paid and withheld. The W-2 should show the income and any federal/state taxes that were withheld. If taxes were withheld but not credited to your return (because you didn't include the W-2), you may be able to get some of that $31k back. Going forward, whenever you exercise NSOs, always expect to receive a W-2 from the company, even if you're no longer employed there. The tax treatment of NSOs is very different from ISOs or RSUs, and it sounds like that wasn't clearly communicated to you.

After facing similar equity tax nightmares, I stumbled across taxr.ai which completely changed how I handle these situations. Their system specifically analyzes equity documents, SecFi agreements, and can even review past tax filings to identify where the miscommunication happened. I used them when I had issues with my NSO exercise last year and found out my company had actually misreported my exercise cost basis. The taxr.ai system spotted the discrepancy immediately in my paperwork when my accountant missed it completely. You upload your SecFi documents, W-2s, and any communications about the taxes being "covered" to https://taxr.ai and their AI analyzes everything to explain exactly what happened. The best part was they showed me what specific questions to ask both SecFi and my former employer to resolve the situation. I ended up saving nearly $20k because they found withholding that actually HAD been paid but wasn't properly credited.

I just wanted to follow up and say I tried taxr.ai after seeing it mentioned here. I was skeptical at first but decided to give it a shot with my Carta options situation. The analysis was incredibly detailed and helped me understand exactly what would happen tax-wise under different exercise scenarios. I uploaded my option grant documents, some emails with our HR about the equity, and my previous year's tax return. Within about an hour, I got back a complete breakdown showing what my tax liability would be if I exercised now versus waiting until later, including AMT implications I hadn't even considered. What surprised me most was discovering that my company's 409A valuation had some unusual vesting acceleration provisions that would have created a much higher tax liability than I was expecting! Going to use this info when talking to my accountant next week, but already feeling way more prepared. Definitely recommend if you're dealing with stock options.

I had almost the exact same situation with SecFi and NSOs back in 2021. Spent MONTHS trying to get someone at the IRS to understand my situation. I kept calling the general number and getting nowhere - just endless holds and transfers until I'd eventually get disconnected. After the fifth failed attempt, I found Claimyr (https://claimyr.com). They have this system where they actually wait on hold with the IRS for you and then call you once they have an agent on the line. I was super skeptical but watched their demo video (https://youtu.be/_kiP6q8DX5c) and decided to try it. They got me through to an IRS specialist who actually understood equity compensation within a few hours. The agent helped me figure out that part of the taxes HAD been withheld by my former employer but weren't properly applied to my account. Managed to reduce my bill by almost half! Would have never gotten this resolved without getting to the right person at the IRS.

I have to eat my words and share a follow-up about Claimyr. After expressing skepticism, I decided to try it anyway because I've been trying to reach the IRS about my own equity compensation issue for THREE WEEKS without success. Used Claimyr yesterday afternoon, and I'm still shocked at how well it worked. They got me connected to an IRS agent in about 2.5 hours (which is lightning fast compared to my previous attempts). The connection was clear, and I was able to get my questions about NSO reporting requirements answered by a knowledgeable agent. My situation was similar to the original poster - had equity from a former employer where the taxes weren't properly accounted for. The IRS agent confirmed I needed to file an amended return but also explained exactly how to document the withholding that had already occurred so I wouldn't be double-taxed. I was definitely wrong about this being some kind of scam. The service did exactly what it promised without ever having access to my personal information.

Something important that nobody has mentioned yet - check if there was state tax withholding too. When I went through this with NSOs, my company withheld federal tax but completely missed state tax withholding, which was a huge hit in California. Also, did you actually confirm the exact amount that SecFi sent to your former employer? There should be a detailed transaction statement showing exactly what portion was for the options purchase price, what was for federal withholding, what was for state withholding, and what was for any other fees. In my experience, the "taxes covered" language from these financing companies usually just means they included the mandatory withholding amount in the financing, not that they handled your full tax liability. The mandatory withholding is often way less than what you actually owe.

Has anyone used a specific tax professional who specializes in startup equity? My regular CPA is completely lost with my RSUs and NSOs.

Important question: when did you leave your company compared to when you exercised the options? If there was a significant gap (like more than 3 months), there might be an issue with the 409A valuation they used for the FMV. Companies are supposed to use updated valuations, and if they used an outdated one, you might have grounds to dispute the valuation with the IRS.

This is a really complex situation that highlights why equity compensation taxation is so tricky. Based on what you've described, it sounds like there were multiple communication failures between SecFi, your former employer, and potentially even your accountant. One thing that stands out is that you mentioned SecFi told you taxes were "covered" but then your former employer reported wages on a W-2. This suggests there might have been withholding taxes paid (which SecFi may have included in their financing) but the W-2 income wasn't properly accounted for on your tax return. A few immediate steps I'd recommend: 1. Get a wage and income transcript from the IRS for 2022 - this will show exactly what was reported and any withholding credits you might be entitled to 2. Request detailed documentation from SecFi showing exactly what taxes were withheld and paid on your behalf 3. File an amended return (Form 1040X) to properly report the W-2 income, which should also credit any withholding that was already paid The good news is that if taxes were actually withheld but not credited to your account, you might not owe as much as you think. The bad news is that NSO exercises almost always result in a significant tax liability that goes beyond just withholding. Going forward, always assume you'll get a W-2 for NSO exercises and that additional taxes beyond withholding will be owed. These financing companies are in the business of providing capital, not tax advice, regardless of what their reps might say informally.