Adequate Tax withholding for vested RSU

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Adequate Tax withholding for vested RSU

Post by newkidontheblock » Sat Dec 29, 2012 3:19 pm


After ignoring my employer stock awards for over 4 years I decided to take a closer look at them.
It turns out that my stock awards are RSU's.
When the stocks vest my employer sells enough shares to make a 25% tax payment.
This seems a bit low to me as I am in 33% tax bracket. This may also explain my large AMT last year.
25% tax withholding scares me. I don't want to be penalized for not paying enough taxes.

Since I don't believe in withholding individual stocks I want to sell most of my RSU's soon.

What is a reasonable method to pay estimated taxes? For the sake a simplicity let us walk through this hypothetical scenario.

100 shares of my stock vested on November 1st, 2012. Let us assume that fair market value on the day of vesting is $20 per share.
Employer sold 25 shares at $20 to pay $500 (25%) in taxes.
Let us also assume that stock stayed flat until December 31st.
On December 31st I sold the remaining 75 shares at $20 per share. Proceeds were $1500 minus $20 broker fees.

Since the employer only withheld 25% in taxes I am assuming I owe more in taxes as I am in 33% tax bracket.
Should I pay an estimated tax of 8% to avoid an tax penalty?

When I sold the shares in December 31st do I have any tax liability at all if the share price has not changed between the time the shares became vested and the time I sold them.


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Re: Adequate Tax withholding for vested RSU

Post by Steelersfan » Sat Dec 29, 2012 3:25 pm

I was always in the same situation, tax withheld at 25% but I was in a higher tax bracket.

I always estimated what my predicted actual tax would be and changed regular payroll withholding earlier in the year so I didn't under withhold. Mine vested in April so I had plenty of time to get enough withheld. Since yours are so late in the year you may have to make an estimated tax payment.

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Re: Adequate Tax withholding for vested RSU

Post by chicagobear » Sat Dec 29, 2012 4:59 pm

My employer lets me specify a higher withholding rate for vesting RSUs which I do. I have also increased my salary withholding to account for my dividend income on other stocks. If the stock price hasn't changed on the RSUs between the time you got them and sold them, you won't owe any tax but you will have to show the sales proceeds versus the basis (value when you got the shares) which will net to zero.

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Re: Adequate Tax withholding for vested RSU

Post by mhc » Sat Dec 29, 2012 8:58 pm

I try to set my exemptions at the right level to have my taxes come out right.This requires making estimates on dividends, RSU's, ESPP, ....

Paying taxes now or later has no affect on AMT.

Before you make an estimated tax payment, make sure you understand the safe harbor rules and also the quarterly tax rules.

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