Why does my company under withhold for RSU vests
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Anonymous
| I just had some RSUs vest and only 35% was taken out for taxes. I’m in the 35% marginal bracket so that’s ignoring Medicare and state tax. I always end up owing 5-10k in taxes every April ever since I started working for this company. Pay is sort of irregular, 50% of compensation comes from bonuses and stock vests. I’m now withholding an extra 1k a month from my base pay to hopefully prevent me owing anything this year. How do companies decide the amount they take out of bonuses and RSUs? This is a big tech company. |
Anonymous
| They use a formula. You can change your with holdings prior to the pay cycle run. |
Anonymous
| Most companies withhold taxes for stock vests at a flat 22% rate for federal plus Medicare and state taxes. That is what the government requires as a minimum. Some companies allow supplemental withholding so you can get closer to your actual tax rate. |
Anonymous
This is 100% correct. We allow employees to increase minimumbl withhold requirement from 22% to the highest supplemental federal tax rate, but it’s one-time election per CY year that cannot be changed during the CY. Employees can opt to have the highest fed tax rate withheld for supplemental income each CY or not |
Anonymous
|
Ours do 27% + mcare + state
I’m always spot on for state but per extra for Medicare and a ton extra for federal - like 15-20k and I boost my withholdings by like 1k per paycheck too. What really sucks is I rarely sell stock so I’m paying taxes in real money on comp that’s locked up in stock. I’m sure there are a million tiny violins playing for me. |
Anonymous
Choosing not to sell is not "locked up". |
Anonymous
it's also a great way to end up poor. the million tiny violins are actually trying to tell you to sell to cover on vest, PP and to rebalance your damn portfolio. |
Anonymous
| Thanks. But I have plenty outside my company stock holdings. |
Anonymous
Then covering the amt that you have artificially “locked up” should be no problem! But it is smarter to diversify. |
Anonymous
| I just take the cash hit - the more I sell the more taxes I owe. The stock has trended very up for the past 15 years. Everything else I invest I keep away from my sector. |
Anonymous
| We always up our withholding to be in the safe harbor. |
Anonymous
If you sell on vest you don’t pay any more taxes. |
Anonymous
This, it makes no difference. You already paid the income tax from withheld shares. Only price movements after vesting affect taxes |
Anonymous
|
I have the same problem as OP - I am lucky to have had 80k of stock vest this year but I owe 10k to the IRS now. Second year in a row of this. What do people do when it’s a really good stock (up 400% from when I was hired) but it’s really throwing off your taxes? Should I at least cash out enough per year to cover the taxes? Technically I can afford it but it seems silly to offset savings.
I understand I can just adjust my withholding but that doesn’t change the fact that money is diverting from my pocket for the time being. And I have two kids in daycare so I will notice nearly $1k per month. Am I missing something obvious that let’s other people avoid this? Prior to this job I was paycheck to paycheck so rich people problems are a mystery to me. |
Anonymous
| Yes you sell enough stock to cover the taxes if paying the taxes and holding onto the stock puts you too much out of pocket |