The non-cash expense that came with an $18.4bn cash bill

Meta Platforms recorded $20.43bn of stock-based compensation in 2025. Its cash flow statement added the whole amount back to net income, because no cash left the company to pay it. Further down the same statement, in the financing section, sits a line for $18.40bn: cash paid to tax authorities on behalf of employees whose shares had just vested.

Both entries are correct. They describe different moments in the life of the same awards, and the gap between them is where most confusion about stock pay begins.

The figures come from Meta's annual report on Form 10-K for 2025. Alphabet's 2025 Form 10-K shows the same pattern at a different scale. The accounting that connects them is set out in the Financial Accounting Standards Board's Accounting Standards Update 2016-09, which amended the stock compensation topic, ASC 718, and the cash flow topic, ASC 230.

What is stock-based compensation?

Stock-based compensation is pay delivered in a company's own equity, most often restricted stock units or options, instead of cash. Under US accounting rules it is an operating expense, measured at the award's fair value on the grant date and recognized over the service period. It reduces reported profit even though no cash changes hands when the expense is booked.

Meta's policy note says its stock compensation expense consists of restricted stock units, measured at grant-date fair value, generally vest over four years, are expensed on a straight-line basis, and that forfeitures are recorded as they occur. ASU 2016-09 is what allowed that last choice: companies may estimate forfeitures in advance or account for them when employees leave.

The expense is spread across the income statement by function. Of Meta's $20.43bn, research and development carried $17.49bn. Cost of revenue took $1.12bn, marketing and sales $926m, and general and administrative $892m. Stock pay is not a separate line on the face of the income statement; it is already inside the costs a reader sees.

That placement matters. Against net income of $60.46bn, the expense is equal to about 34 percent of Meta's profit for the year. At Alphabet, the cash flow add-back of $24.95bn is equal to about 19 percent of net income of $132.17bn.

Why is stock-based compensation added back on the cash flow statement?

Stock-based compensation is added back because the indirect method starts from net income, and net income was reduced by an expense settled in shares rather than cash. Adding it back converts profit into cash generated by operations. The add-back does not mean the cost is free; it means the cost was paid in a currency the cash flow statement does not count.

Meta's operating cash flow for 2025 was $115.80bn. Without the add-back, the same calculation would have produced $95.37bn. Alphabet reported operating cash flow of $164.71bn, which includes its $24.95bn add-back.

The add-back is mechanically correct. It also explains why free cash flow measures, which start from operating cash flow, can look stronger at companies that pay heavily in stock than at companies that pay the same people the same value in salary. The salary would have reduced operating cash flow. The stock award does not.

Alphabet's filing adds a wrinkle that a quick reading misses. Its compensation note reports total stock-based compensation expense of $27.1bn for 2025, of which $24.1bn relates to awards it expects to settle in Alphabet stock. The cash flow add-back is $24.95bn, and the equity statement credits $25.13bn to paid-in capital. Four figures, each correct for its own purpose. About $3.0bn of the year's expense relates to awards Alphabet does not expect to settle in its own shares, so the familiar headline number depends on which page it was copied from.

Where does the cash go when shares vest?

When restricted stock units vest, the employee owes income tax on the value of the shares received. Meta and Alphabet both pay that tax for the employee in cash and keep back an equivalent number of shares, a practice called net share settlement. The cash payment appears in financing activities, not operations, because accounting rules treat it as buying back equity.

The rule is explicit. ASU 2016-09 amended paragraph 230-10-45-15 so that cash paid to a tax authority by an employer withholding shares from an employee's award "shall be considered an outlay to reacquire" the entity's equity instruments. Before the update, GAAP gave no guidance on where that payment belonged. For public companies with calendar fiscal years, it has been a financing outflow since 2017.

The economic effect is the same as the company issuing all the vested shares and immediately repurchasing some of them for cash. The cash leaves. It simply leaves below the operating line.

Meta, $m	2023	2024	2025
Stock-based compensation expense	14,027	16,690	20,427
Taxes paid on net share settlement	7,012	13,770	18,400
Withholding as share of the expense	50.0%	82.5%	90.1%

Source: Meta Form 10-K for 2025, consolidated statements of cash flows and share-based compensation note. Percentages are Money & World calculations.

The ratio rose from half to nine tenths in two years. Meta's filing does not attribute the change to any single cause, and this piece does not either. The arithmetic, however, points to the next section: the withholding payment is driven by the share price on the vesting date, while the expense is fixed at the grant date.

Alphabet labels its line "net payments related to stock-based award activities", which was $14.17bn in 2025, against the $24.95bn add-back. Its equity statement records $14.84bn of tax withholding related to vesting of restricted stock units and other awards. The company's note describes the mechanism in plain terms: shares are issued on vesting dates net of the statutory withholding it pays on employees' behalf, so fewer shares are issued than the number of units that vested.

Why can the cash cost exceed the reported expense?

The expense is locked at grant-date fair value, while withholding tax is calculated on the value of shares when they vest. If the share price has risen between grant and vesting, the tax bill grows but the expense does not. Over a four-year vesting schedule, that gap can be large.

Meta's award table shows the scale. The 61.9 million units that vested in 2025 carried a weighted-average grant-date fair value of $317.68 a share, about $19.67bn in total. The filing reports their fair value on the vesting dates as $43.11bn. The same shares were worth 2.19 times as much when they vested as when they were expensed.

The $18.40bn withheld is about 42.7 percent of that vest-date value. Measured against the grant-date value of the same units, it is 94 percent. A different year, with a different share price path, would produce a different relationship.

Alphabet's 181 million vested units had a weighted-average grant-date value of $133.90, about $24.24bn. Their vest-date value was $39.7bn, a multiple of 1.64. Its $14.84bn of withholding was about 37.4 percent of the vest-date figure.

The reverse also happens. When a share price falls between grant and vesting, the expense already booked stays on the income statement and the withholding cash shrinks. Accounting does not reverse the expense because the award turned out to be worth less.

There is a tax counterpart to the gap. Under ASU 2016-09, the difference between the tax deduction at vesting and the expense booked at grant flows through income tax expense as an excess benefit or a shortfall. Meta recognized a $9.33bn income tax benefit related to awards that vested in 2025. Its risk factors add that, following the enactment of the federal tax law the filing calls OBBBA, excess tax benefits from stock compensation may not be realizable because of the corporate alternative minimum tax.

How does stock-based compensation dilute shareholders?

Stock awards dilute shareholders when vesting adds new shares to the count. The income statement shows dilution in diluted earnings per share, which includes unvested awards under the treasury stock method. The equity statement shows the shares actually issued. Neither number is the expense, and neither tells a reader how much was spent to offset the new shares.

Meta issued 63 million shares in 2025 and withheld 27 million on net settlement, a net addition of 36 million. It repurchased 40 million. Shares outstanding moved from 2,534 million at the end of 2024 to 2,530 million a year later, a decline of 4 million.

Meta, 2025	Millions of shares
Outstanding at December 31, 2024	2,534
Issued on vesting	+63
Withheld for taxes	-27
Repurchased	-40
Outstanding at December 31, 2025	2,530

Source: Meta Form 10-K for 2025, consolidated statements of stockholders' equity.

To hold the count roughly flat, Meta spent $26.25bn on repurchases and $18.40bn on withholding: $44.65bn of cash in the financing section. That is 2.19 times the $20.43bn expense.

Alphabet's count fell further because it bought back far more. It issued 117 million shares, net of withholding, and repurchased and retired 240 million for $45.40bn, according to its equity statement. Shares outstanding went from 12,211 million to 12,088 million. Its financing outflows for buybacks and award payments totaled $59.88bn, about 2.4 times the add-back.

Diluted earnings per share records a different kind of dilution. Meta's diluted share count was 2,574 million against basic shares of 2,521 million, a difference of 53 million, or 2.1 percent. About 9 million units were left out because including them would have raised earnings per share. Alphabet's diluted count exceeded basic by 114 million, or 0.9 percent.

Those percentages measure awards that might become shares. They do not measure the cash spent to absorb shares that already did.

Which number answers which question?

The expense answers what the company paid employees, measured once at grant. The cash flow add-back answers how much of that pay did not use operating cash. Withholding and buybacks answer how much cash went out to manage the share count. The share-count change answers what happened to ownership. Each is a fair answer to its own question and a poor answer to the others.

A reader comparing two companies can make several mistakes with the same filing:

• Treating operating cash flow, or free cash flow derived from it, as the cash available after paying employees. At Meta in 2025, $18.40bn of employee-related tax cash appears only in financing.
• Treating buybacks as a pure return of capital. Part of Meta's and Alphabet's repurchases offset shares issued to employees, which is why share counts barely moved at Meta despite $26.25bn of purchases.
• Treating grant-date expense as the current value of awards. Meta's 2025 grants of 69.7 million units at $661.57 a share were worth about $46.09bn at grant, more than twice the year's expense, and that value reaches the income statement only as it vests.
• Treating diluted share count as the full cost of stock pay. A company can keep dilution low by spending cash, and the spending sits elsewhere.

None of this makes stock compensation a hidden cost. Every figure here is disclosed, and much of it is on the face of the primary statements. The difficulty is that the disclosures are spread across four places, and each one is labeled accurately for its own purpose.

What is still to be recognized?

Unvested awards carry expense that has not yet reached the income statement. Meta reported $54.81bn of unrecognized compensation cost on its restricted stock units at the end of 2025, to be recognized over about three years. Alphabet reported $42.9bn over a weighted-average 2.6 years. Those amounts are fixed at grant-date values, whatever the shares are later worth.

Meta's unvested balance rose in value even as the number of units fell. It held 122.6 million unvested units at an average grant value of $302.27 at the start of 2025 and 115.6 million at $500.68 at the end. Alphabet's unvested units fell from 299 million to 282 million, while their average grant value rose from $122.77 to $159.75.

The future withholding bill on those units is not disclosed and cannot be. It depends on share prices on dates that have not happened. What the filings do establish is the direction of sensitivity: a higher share price at vesting means more tax cash and more shares withheld or repurchased, with no change to the expense already scheduled.

Frequently asked questions

Is stock-based compensation a real expense?

Yes. Under ASC 718 it is a compensation expense recognized over the service period at grant-date fair value, and it reduces operating income and net income. It is called non-cash because the company settles it in shares, not because it has no economic cost to existing shareholders.

Why is stock-based compensation added back to cash flow from operations?

The indirect method starts from net income. Because the expense reduced net income without using cash, it is added back to arrive at operating cash flow. Related cash payments, such as tax paid when shares are withheld on vesting, are reported as financing activities under ASC 230.

Where do withholding taxes on vested restricted stock units appear?

When an employer withholds shares and pays the employee's tax in cash, the payment is a financing outflow. ASU 2016-09 classifies it as an outlay to reacquire the company's own equity. Meta reported $18.40bn of such payments in 2025; Alphabet reported $14.17bn of net payments related to award activity.

Does stock-based compensation always dilute shareholders?

New shares issued on vesting increase the count, but companies can offset them by withholding shares for taxes and by buying back stock. Meta issued 63 million shares in 2025 and still ended the year with 4 million fewer outstanding. The offset was paid for with $44.65bn of financing cash.

Why does the expense differ from the value employees receive?

The expense is measured when the award is granted. Employees receive shares worth whatever the price is when they vest. Meta's 2025 vested units were expensed at about $19.67bn of grant-date value and were worth $43.11bn on their vesting dates.