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Lest anyone leave confused, this only applies for privately-held companies. If you are entertaining an offer from Google, Apple, Netflix, Amazon, etc., when yo

Lest anyone leave confused, this only applies for privately-held companies. If you are entertaining an offer from Google, Apple, Netflix, Amazon, etc., when your shares vest, the default option is usually "sell to cover", which means they will automatically sell shares to use as a tax withholding. Everything will be on your W-2, no estimated taxes needed.

pxx 7y ago
Typically this withholding is not sufficient, as it's done at bonus rates, which is less than your marginal. You can always elect to withhold more base salary though.
NeptuneNancy 7y ago
Not necessarily. My husband’s company that I was referring to was publicly traded, although much smaller than Google or Facebook. They took care of payroll taxes due on the value of the vested stock; we paid the income tax to the IRS quarterly. The value of the stock was included in his W2, however if we waited until we filed our taxes we would have incurred penalties, on top of a hefty tax bill. Companies like Google may handle things differently, and companies that deal in RSUs may as well. My point still stands that you need to understand the tax implications of your offer.
- dharmon 7y ago
  Fair enough. I'm only familiar with the big tech companies and a few of the smaller ones. Although I'm surprised your husband's brokerage did not have this option for you.
  - pxx 7y ago
    They can't. withholding amounts are fixed by the IRS, at 22% below 1 million dollars, 37% above
  - NeptuneNancy 7y ago
    My husband’s unvested shares were held by a transfer agent, where they remained once they vested, until we requested they be transferred to a broker. (Not that I’ve ever had a broker withhold taxes, but those would be capital gains anyway.) Taxes incurred upon vesting are income taxes. Even if it’s not cash in your pocket, Uncle Sam wants his cut!
manacit 7y ago
This is dangerous advice, and I wouldn't recommend that anyone assume that everything is 'just handled' when it involves taxes and anything more complex than regular salary. RSUs, bonuses, etc. will likely be withheld at the IRS supplemental rate of 22% (37% once employees receive >$1mm of it in a year), whereas your marginal rate could easily reach above that depending on how much equity and bonus compensation you're getting. In your first windfall year, the IRS has rules that will prevent people from being hit with overwitholding penalties. After that, if you don't pay at least 90% of your calculated end of year taxes, you're going to see a penalty. My advice to _anyone_ starting off is to just talk to a professional when equity and bonuses are involved. It is going to cost you money, but it is going to save you money in the long run.
- fountainofage 7y ago
  The other option is to pay 110% of your prior year taxes. As long as you're on track to do that, then you also don't get hit with penalties.
- dharmon 7y ago
  I don't understand the situation you are concerned about where you don't end up paying the minimum of 90% of your current year's tax or 110% of the previous year's tax (these are the numbers to avoid a penalty). Can you explain this situation? As I see it, even in the wild case where your company's stock explodes, if your brokerage is "selling to cover", you will more than hit 110% of your previous year's tax bill (since you are paying 22% tax on those shares). Yes, you will get a whopper of a tax bill, but you won't pay penalties on it. Btw, I don't know why you quoted "just handled" when I didn't use those words. I wanted people to recognize what "sell to cover" means, since usually when you start with a company you have to create a brokerage account and they will ask how you want your taxes handled.
  - manacit 7y ago
    If you're vesting enough equity, your brokerage is only holding on to 22% and you don't have enough of your salary withheld, it's very possible to end up with a marginal rate that is in the high 20s or low 30s, and not enough tax paid. This can happen without triggering the 110% of previous year portion if you're regularly vesting a lot of equity - the more you vest, the farther 22% is going to be from your actual marginal tax rate. I used single quotes instead of double quotes around "just handled" to quote the idea and summary of what you were saying - that it would be handled automatically by the brokerage - and not as a direct quote

pxx 7y ago

Typically this withholding is not sufficient, as it's done at bonus rates, which is less than your marginal. You can always elect to withhold more base salary though.

NeptuneNancy 7y ago

Not necessarily. My husband’s company that I was referring to was publicly traded, although much smaller than Google or Facebook. They took care of payroll taxes due on the value of the vested stock; we paid the income tax to the IRS quarterly. The value of the stock was included in his W2, however if we waited until we filed our taxes we would have incurred penalties, on top of a hefty tax bill. Companies like Google may handle things differently, and companies that deal in RSUs may as well. My point still stands that you need to understand the tax implications of your offer.

dharmon 7y ago
Fair enough. I'm only familiar with the big tech companies and a few of the smaller ones. Although I'm surprised your husband's brokerage did not have this option for you.
- pxx 7y ago
  They can't. withholding amounts are fixed by the IRS, at 22% below 1 million dollars, 37% above
- NeptuneNancy 7y ago
  My husband’s unvested shares were held by a transfer agent, where they remained once they vested, until we requested they be transferred to a broker. (Not that I’ve ever had a broker withhold taxes, but those would be capital gains anyway.) Taxes incurred upon vesting are income taxes. Even if it’s not cash in your pocket, Uncle Sam wants his cut!

manacit 7y ago

This is dangerous advice, and I wouldn't recommend that anyone assume that everything is 'just handled' when it involves taxes and anything more complex than regular salary. RSUs, bonuses, etc. will likely be withheld at the IRS supplemental rate of 22% (37% once employees receive >$1mm of it in a year), whereas your marginal rate could easily reach above that depending on how much equity and bonus compensation you're getting. In your first windfall year, the IRS has rules that will prevent people from being hit with overwitholding penalties. After that, if you don't pay at least 90% of your calculated end of year taxes, you're going to see a penalty. My advice to _anyone_ starting off is to just talk to a professional when equity and bonuses are involved. It is going to cost you money, but it is going to save you money in the long run.

fountainofage 7y ago
The other option is to pay 110% of your prior year taxes. As long as you're on track to do that, then you also don't get hit with penalties.
dharmon 7y ago
I don't understand the situation you are concerned about where you don't end up paying the minimum of 90% of your current year's tax or 110% of the previous year's tax (these are the numbers to avoid a penalty). Can you explain this situation? As I see it, even in the wild case where your company's stock explodes, if your brokerage is "selling to cover", you will more than hit 110% of your previous year's tax bill (since you are paying 22% tax on those shares). Yes, you will get a whopper of a tax bill, but you won't pay penalties on it. Btw, I don't know why you quoted "just handled" when I didn't use those words. I wanted people to recognize what "sell to cover" means, since usually when you start with a company you have to create a brokerage account and they will ask how you want your taxes handled.
- manacit 7y ago
  If you're vesting enough equity, your brokerage is only holding on to 22% and you don't have enough of your salary withheld, it's very possible to end up with a marginal rate that is in the high 20s or low 30s, and not enough tax paid. This can happen without triggering the 110% of previous year portion if you're regularly vesting a lot of equity - the more you vest, the farther 22% is going to be from your actual marginal tax rate. I used single quotes instead of double quotes around "just handled" to quote the idea and summary of what you were saying - that it would be handled automatically by the brokerage - and not as a direct quote