Coordinating taxes around equity compensation
Equity compensation can move a large amount of income into a single year, often with too little tax withheld. Coordinating ahead of vests, exercises and sales helps avoid penalties and surprises. This guide explains what is usually coordinated.
Withholding versus actual tax
Employers often withhold on equity income at a flat supplemental rate. If your marginal rate is higher, the difference is owed at filing, and underpayment penalties can apply. Estimated payments or extra withholding are common ways people handle this.
Timing across the year
Exercises and sales can be spread across tax years in some cases, which changes how much income lands in each. Year-end is often when people review what has happened and what is still planned.
Who needs to know
Your CPA needs grant details, vest and exercise confirmations and sale records. If you also work with a financial planner, sharing the same information helps both see the same picture.
What to gather
- Year-to-date equity income and withholding
- Planned vests, exercises or sales this year
- Whether estimated payments are scheduled
- Who receives your equity statements
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Frequently asked questions
Why is my tax bill higher than expected after RSUs vested?
Often because withholding was at a flat rate lower than your marginal rate. A CPA can review your specific situation.
Is this equity compensation guide advice?
No. Sam's List writes these guides for education. They describe common questions and processes, not advice for your specific situation.
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