In this video, I explain why you may have to pay more in taxes on your RSUs than you realize and how to solve that problem.
Why Do I Have to Pay More in Taxes on My Restricted Stock Units Transcript
Hi, I’m Tom Lo with Vested Financial Planning. Clients who have RSUs will often be surprised by a big tax bill come April. So let me explain what happens.
Typically when you vest your RSUs, the company withholds enough RSUs. Sells to cover the taxes and withholding. They often use the standard rate, which is a 22% federal withholding and you’re left with the remaining RSUs in your employee stock account.
Now let’s say you’re in a higher tax bracket, which many people often are. You could be as high as say a 37% tax bracket. In that case, if you were withheld at 22%, but you should be paying 37%, that means you’re being under withheld 15%. So that means you still owe that 15% in taxes and come April that’s actually, when you have to pay the taxes and that’s why you get surprised.
So what I recommend for my clients to make sure that doesn’t happen is, as soon as you vest, you figure out what your actual tax bracket is. You set aside the tax reserve to cover the taxes, so that come April, you have the cash to pay the taxes, and you aren’t surprised by a big tax bill due to your RSUs. For more information, schedule a call with me.
After 20 years working for companies including eBay, Yahoo!, Intuit, and startups, I made a career change into the financial world as a fee-only financial planner 9 years ago. I earned my CFP®, spent a few years at a boutique fee-only firm in San Jose, worked 2 1/2 years at a leading wealth management firm in San Francisco, and then left to build the firm I wish had existed when I was working as a tech professional.
My mission is to help other Silicon Valley professionals make the most of their employee equity to help them reach their financial goals.
