Estimated taxes for RSUs / stocks

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ThisJustIn
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Estimated taxes for RSUs / stocks

Post by ThisJustIn »

I own a number of RSUs from 2 companies I worked at in the past, and I will be paid RSUs in my next company. I remember mentions of estimated taxes I have to pay for these RSUs, or otherwise I pay penalty during tax season. Questions here:

1) When RSUs are vested, is that when the tax clock starts? And does the tax clock at the end until end of the year?
2) How can I correctly estimate these taxes (and pay via IRS website)? I don't want to overpay (I know the extra money will be returned back to me, but there is an opportunity).
3) Are there taxes to be estimated for these stocks after tax season? For example, for RSUs there were vested 5 years ago, tax season was in 2016, and I'm guessing I already paid estimated taxes for these RSUs for the year they vested. Do I need to pay estimated taxes for the years following the vesting year? I guess not, but just checking.

I just want to prevent feeding the tax monster, I'm already paying more than my fair share of it. Given that my RSUs are higher than my base + bonus in my next role, I don't want to be paying extra estimated taxes.
WhatsIRR
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Re: Estimated taxes for RSUs / stocks

Post by WhatsIRR »

They count as regular income so you would pay estimated taxes at your marginal tax rate the quarter that they vest. I.e $100,000 vest and you are in the 32% bracket you’d need to pay $32,000 in estimated taxes.

You can usually select net shares and they will see a portion of your RSUs to pay the taxes. I have always used net shares to pay the taxes.

You only pay income tax when they vest and capital gains when you sell if they have appreciated.
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Alto Astral
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Re: Estimated taxes for RSUs / stocks

Post by Alto Astral »

When the RSUs vest, the administrator will sell a portion of it to cover the taxes. Basically it's income and its taxed as such. This is unless they allow you to send them a check for the taxes. The only tax you would pay on past RSUs is the gain. With the new company, sell the RSUs as soon as they vest . See: Sell Your RSUs As Soon As They Vest
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ThisJustIn
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Re: Estimated taxes for RSUs / stocks

Post by ThisJustIn »

WhatsIRR wrote: Wed Nov 24, 2021 11:30 pm They count as regular income so you would pay estimated taxes at your marginal tax rate the quarter that they vest. I.e $100,000 vest and you are in the 32% bracket you’d need to pay $32,000 in estimated taxes.

You can usually select net shares and they will see a portion of your RSUs to pay the taxes. I have always used net shares to pay the taxes.

You only pay income tax when they vest and capital gains when you sell if they have appreciated.
Just trying to clarify. Say RSUs of 100K value vested at the beginning of the year (say February), this is the cost basis. The company already taxes a default value. What is the percentage of this first tax cut? I hear it is something like 22% federal tax + ~10% tax for state (and maybe FICA as well? not sure, correct me if I'm wrong). Then, at the end of the year, if I end up in 35% federal tax bracket and 11% state tax bracket, do I end up having to pay additional taxes ( (35%-22%) + (11%-10%) = 14%) tax? Does this mean 14% of 100K, which is 14K, and by when should I pay it to get no penalty? (which I guess makes the 14K as 14K plus some). What is the penalty interest rate? Is this what the estimated taxes is? How do I know beforehand what my marginal tax bracket will be?
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ThisJustIn
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Re: Estimated taxes for RSUs / stocks

Post by ThisJustIn »

Alto Astral wrote: Thu Nov 25, 2021 12:57 am When the RSUs vest, the administrator will sell a portion of it to cover the taxes. Basically it's income and its taxed as such. This is unless they allow you to send them a check for the taxes. The only tax you would pay on past RSUs is the gain. With the new company, sell the RSUs as soon as they vest . See: Sell Your RSUs As Soon As They Vest
"the administrator will sell a portion of it to cover the taxes" => How do I learn the percentage that the administrator sells?
"The only tax you would pay on past RSUs is the gain." => I assume, after tax season, when I pay taxes, I pay them with the estimated tax penalty, and once that is paid, I don't pay any additional tax on the RSUs vested in that year, is this correct?

"With the new company, sell the RSUs as soon as they vest" => I'm mainly a 3-fund portfolio investor, but I'm not selling RSUs all at once, I'm selling them gradually when they hit certain conditions. This is not going to change.
drk
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Re: Estimated taxes for RSUs / stocks

Post by drk »

ThisJustIn wrote: Tue Nov 30, 2021 10:58 am Just trying to clarify. Say RSUs of 100K value vested at the beginning of the year (say February), this is the cost basis. The company already taxes a default value. What is the percentage of this first tax cut? I hear it is something like 22% federal tax + ~10% tax for state (and maybe FICA as well? not sure, correct me if I'm wrong).
Unless you requested a different rate, your employer would have used a default tax rate (I believe that's 22% by statute, no idea about state because we don't have those). You should have a paystub for the RSU vest, which will make figuring out the tax rates a trivial task.
ThisJustIn wrote: Tue Nov 30, 2021 10:58 am Then, at the end of the year, if I end up in 35% federal tax bracket and 11% state tax bracket, do I end up having to pay additional taxes ( (35%-22%) + (11%-10%) = 14%) tax? Does this mean 14% of 100K, which is 14K, and by when should I pay it to get no penalty? (which I guess makes the 14K as 14K plus some). What is the penalty interest rate? Is this what the estimated taxes is?
You're going to want to read about the IRS safe harbor rules for underpayment (one resource from H&R Block). Make sure your withholding and estimated tax payments meet the safe harbor threshold, and you won't be on the hook for penalties even if you need to pay more taxes come filing.
ThisJustIn wrote: Tue Nov 30, 2021 10:58 am How do I know beforehand what my marginal tax bracket will be?
Add up your total compensation for 2021 (cash + RSUs + whatever other income you have) and find it in the marginal rate brackets.
allones
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Re: Estimated taxes for RSUs / stocks

Post by allones »

At my company, the administrator/company withholds the number of shares needed to cover taxes based on my W4 elections at vest, and then the remaining shares are transferred to a brokerage account for me to do with what I wish. At tax filing time, that amount is included in my federal taxes withheld (I'm in a no state income tax state).
WhatsIRR
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Re: Estimated taxes for RSUs / stocks

Post by WhatsIRR »

drk wrote: Tue Nov 30, 2021 11:23 am
ThisJustIn wrote: Tue Nov 30, 2021 10:58 am Just trying to clarify. Say RSUs of 100K value vested at the beginning of the year (say February), this is the cost basis. The company already taxes a default value. What is the percentage of this first tax cut? I hear it is something like 22% federal tax + ~10% tax for state (and maybe FICA as well? not sure, correct me if I'm wrong).
Unless you requested a different rate, your employer would have used a default tax rate (I believe that's 22% by statute, no idea about state because we don't have those). You should have a paystub for the RSU vest, which will make figuring out the tax rates a trivial task.
I feel like mine usually tax at a higher rate than my marginal, I usually lose about 40% to the taxman.

If you know how many shares you were granted and how many were deposited you can calculate what percentage were sold to pay taxes.
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