Calculate Your Exact RSU Tax Liability and Discover Hidden Savings Opportunities with Our California-Specific Calculator
Quick Answer for Tech Employees
RSUs are taxed as ordinary income when they vest at combined rates up to 50.3% in California (37% federal + 13.3% state). Our calculator handles California’s unique 10.23% supplemental withholding, uncapped SDI tax, and potential AMT implications. Most tech employees are under-withheld by 15-28% on their RSUs, creating unexpected tax bills. Use our calculator below to determine your exact liability and identify tax-saving strategies.
Why 73% of Tech Employees Face Unexpected RSU Tax Bills
Picture this scenario: You’re a senior engineer at a successful tech company. Your RSUs have been vesting quarterly, and everything seems fine. Then April arrives, and your CPA delivers devastating news—you owe $127,000 in additional taxes. The 22% federal and 10.23% California withholding on your RSUs wasn’t nearly enough. This scenario plays out thousands of times each year across Silicon Valley, Seattle, Austin, and other tech hubs.
The California Tech Employee Tax Perfect Storm
California tech professionals face a unique combination of tax challenges that create what we call the “perfect storm” of RSU taxation. When your RSUs vest, you’re not just dealing with federal taxes. You’re navigating a complex web of overlapping tax obligations:
Federal income tax reaches up to 37% for high earners. California state income tax adds another 13.3% for those earning over $1 million. The state’s disability insurance (SDI) tax, which lost its wage cap in 2024, tacks on an additional 0.9% on all income. Medicare tax adds 1.45%, with an additional 0.9% Medicare surtax kicking in for high earners. When you add it all up, tech professionals can face a combined marginal tax rate exceeding 52% on their RSU income.
This creates a fundamental problem: the gap between what’s withheld and what you actually owe. Your employer is required to withhold taxes when your RSUs vest, but the withholding rates often fall far short of your actual tax liability.
RSU Tax Calculator for California Tech Professionals
Calculate your exact tax liability and discover savings opportunities
Your RSU Information
Calculating your taxes…
Your RSU Tax Analysis
Total Tax Liability on RSUs
Tax Breakdown
⚠️ Withholding Gap Alert
Standard withholding: $0
Your actual tax: $0
You’re under-withheld by:
📋 Your Action Items
- Adjust W-4 for additional withholding
- Make quarterly estimated payments
- Set aside funds for tax payment
Published: August 26, 2025
- Quick Answer for Tech Employees
- Why 73% of Tech Employees Face Unexpected RSU Tax Bills
- RSU Tax Calculator for California Tech Professionals
- How to Use Our Advanced RSU Tax Calculator
- California's Unique RSU Tax Landscape
- Advanced RSU Tax Strategies That Save Real Money
- RSU Taxes During Major Career Events
- Common RSU Tax Mistakes That Cost Thousands
- Your RSU Tax Action Plan
- Frequently Asked Questions About RSU Taxes
- How are RSUs taxed in California?
- What is the RSU tax rate for high earners?
- When do I pay taxes on RSUs?
- What's the difference between RSU withholding and actual tax owed?
- Should I sell RSUs immediately or hold them?
- How can I reduce taxes on my RSUs?
- What happens to RSU taxes if I move out of California?
- How are RSUs taxed during an IPO?
- Can I make an 83(b) election on RSUs?
- How do RSUs affect my tax bracket?
- Are RSUs subject to AMT?
- What if I work remotely from another state?
- How do I calculate quarterly estimated taxes on RSUs?
- What happens to RSU taxes if I'm laid off?
- Should I elect additional RSU withholding?
- Take Control of Your RSU Taxes Today
Why Your Company’s 22% Withholding Creates a Massive Tax Gap
The IRS classifies RSUs as supplemental wages, which triggers specific withholding rules that can leave tech employees dramatically under-withheld. For federal taxes, employers must withhold at a flat 22% rate on supplemental wages up to $1 million, jumping to 37% only on amounts exceeding $1 million in a calendar year.
Here’s where the math becomes problematic. If you’re a tech professional earning $250,000 in base salary, you’re already in the 35% federal tax bracket. When your RSUs vest, that additional income is taxed at your marginal rate—35%—but your employer only withholds 22%. That’s a 13% gap on every dollar of RSU income.
California compounds this problem with its own supplemental withholding rate of 10.23%. But if your total income puts you in California’s 11.3% or 12.3% brackets (or the 13.3% millionaire’s tax), you’re under-withheld at the state level too. A tech professional with $500,000 in total income faces a California marginal rate of 11.3%, creating a 1.07% withholding gap. While that might seem small, on $200,000 of RSU income, it’s an additional $2,140 you’ll owe.
The combined effect is staggering. Let’s walk through a real example:
You’re a software engineer with a $300,000 base salary. This year, $400,000 worth of RSUs vest. Your federal marginal tax rate is 35%, and your California rate is 11.3%. Your employer withholds 22% federal and 10.23% state, totaling 32.23%. But your actual marginal tax rate is 46.3% (plus Medicare and SDI). On that $400,000 of RSU income, you’re under-withheld by approximately $56,280. That’s a significant unexpected tax bill come April.
How to Use Our Advanced RSU Tax Calculator
Our RSU tax calculator is specifically designed for California tech professionals who need more than basic withholding estimates. Unlike generic calculators that provide rough estimates, ours accounts for California’s unique tax landscape, including supplemental withholding rates, uncapped SDI, potential AMT implications, and multi-state allocation for remote workers.
Understanding the Calculator Inputs
The calculator starts with basic information about your RSU vesting event. You’ll enter the number of RSUs vesting, which could be a single grant or multiple grants vesting in the same tax year. The current share price (or expected vesting price) determines the taxable value of your RSUs. We provide real-time price lookups for public companies, or you can enter your company’s 409A valuation for private company RSUs.
Your base salary and bonus information helps determine your marginal tax bracket, which is crucial for calculating the withholding gap. Don’t forget to include all compensation: base salary, cash bonuses, and any other taxable income. This total determines which tax brackets apply to your RSU income.
Filing status significantly impacts your tax calculation. Single filers hit higher tax brackets at lower income levels compared to married filing jointly. However, married filing separately often results in the worst outcome for high earners with RSUs, so most tech professionals benefit from filing jointly if married.
Advanced Features That Maximize Your Tax Savings
Beyond basic calculations, our calculator includes sophisticated features designed specifically for tech employees navigating complex equity compensation scenarios.
The California-specific module handles the state’s unique tax requirements. California’s 10.23% flat supplemental withholding rate applies regardless of your actual tax bracket, creating systematic under-withholding for high earners. The calculator shows your exact withholding gap and provides specific recommendations for additional withholding or estimated tax payments.
Starting in 2024, California removed the wage cap on State Disability Insurance (SDI), meaning you now pay 0.9% on all income with no ceiling. For someone with $1 million in RSU income, this change alone adds $9,000 to their tax bill. Our calculator factors this in automatically and shows the year-over-year impact if you had RSUs vesting in previous years.
The multi-scenario planning tool lets you model different outcomes. What if your company’s stock price doubles before your next vesting date? What if it drops 30%? You can run multiple scenarios to understand your potential tax liability range and plan accordingly. This is particularly valuable during volatile market periods or as you approach an IPO.
For tech professionals on H1-B visas or those who’ve relocated, the international and multi-state features are essential. The calculator can handle partial-year residency, determining how much of your RSU income is subject to California tax based on the time between grant and vest. If you worked in California for three years of a four-year vesting period, California can tax 75% of the income even if you’ve moved to a no-tax state.
Interpreting Your Results and Taking Action
Once you’ve entered your information, the calculator provides a comprehensive breakdown of your tax liability. But more importantly, it translates these numbers into specific action items.
Your federal tax liability is broken down by income type and rate. You’ll see exactly how much tax is owed on your RSU income at your marginal rate, plus any additional Medicare tax that applies. The calculator identifies if you’re subject to the additional 0.9% Medicare surtax (which kicks in at $200,000 for single filers and $250,000 for joint filers).
California tax calculations include both income tax and SDI. The calculator shows your marginal state rate and calculates the exact withholding gap. For many tech professionals, this reveals an under-withholding of $10,000 to $50,000 or more on RSU income.
The action items section is where the calculator truly shines. Based on your specific situation, it might recommend:
- Adjusting your W-4 to increase withholding from your regular paycheck
- Making specific quarterly estimated tax payments (with exact amounts and due dates)
- Requesting supplemental withholding rate adjustments from your employer
- Timing strategies for future RSU vests or sales
- Tax-loss harvesting opportunities to offset RSU income
California’s Unique RSU Tax Landscape
California’s approach to taxing RSUs creates unique challenges and opportunities for tech employees. Understanding these state-specific rules is crucial for accurate tax planning and avoiding costly surprises.
The 10.23% Supplemental Withholding Trap
California requires employers to withhold state income tax on RSU income at a flat rate of 10.23%, regardless of your actual tax bracket. This one-size-fits-all approach creates systematic under-withholding for higher earners.
Consider a principal engineer with total income of $600,000. Their California marginal tax rate is 11.3%, but their RSUs are only withheld at 10.23%. On $300,000 of RSU income, they’re under-withheld by $3,210. Add in the uncapped SDI tax, and the shortage grows to $5,910 just at the state level.
The problem intensifies for those earning over $1 million annually. California’s millionaire’s tax imposes a 13.3% rate on income exceeding $1 million. Yet RSU withholding remains at 10.23%, creating a 3.07% gap. On $500,000 of RSU income for someone in this bracket, that’s an additional $15,350 owed to California.
Many tech employees don’t realize this withholding gap exists until they receive a massive tax bill. By then, they may face underpayment penalties on top of the original tax owed. California charges interest on underpaid taxes from the original due date, currently at 7% annually.
The 2024 Game-Changer: Uncapped SDI Tax
Prior to 2024, California’s State Disability Insurance tax was capped at a maximum wage base. In 2023, you paid 0.9% SDI tax only on the first $153,164 of wages, for a maximum annual SDI tax of $1,378.48. This cap provided relief for high earners with substantial RSU income.
The 2024 change eliminated this cap entirely. Now, all wage income—including RSUs—is subject to the 0.9% SDI tax with no limit. For tech employees with significant RSU income, this represents a substantial tax increase that many haven’t planned for.
Let’s quantify the impact. A software engineer with $200,000 in base salary and $800,000 in RSU income now pays $9,000 in SDI tax, compared to the previous maximum of $1,378.48. That’s an additional $7,621.52 in state taxes that didn’t exist in prior years.
This change particularly affects tech employees during liquidity events. If your company goes public and you have $2 million in RSUs vesting, you’ll owe $18,000 in SDI tax alone. Combined with regular state income tax, your California tax bill could exceed $280,000 on that vesting event.
California Source Income Rules for Mobile Tech Workers
California’s aggressive approach to taxing RSU income extends beyond current residents. The state’s source income rules can create tax obligations for former residents and non-residents who earned RSUs while working in California.
For current California residents, the rules are straightforward but expensive. California taxes 100% of your RSU income, regardless of where you perform services. Even if you work remotely from other states, California considers all RSU income taxable if you’re a California resident. This catches many remote workers off guard, especially those who spend significant time working from other locations.
Former California residents face complex allocation rules. California uses a formula based on the ratio of California workdays to total workdays between the grant date and vesting date. If you worked in California for 36 months of a 48-month vesting period, California claims the right to tax 75% of your RSU income, even if you’ve established residency elsewhere.
The calculation becomes even more complex for multi-state workers. Each state may have different rules for allocating RSU income. Some states provide credits for taxes paid to other states, while others don’t. Without careful planning, you could face double taxation on the same income.
Non-residents who receive RSUs for California service face similar allocation requirements. If you’re based in Washington but spend two weeks per quarter working at your company’s California office, California will claim a portion of your RSU income. The state is aggressive in pursuing these taxes, using employer reporting and other data sources to identify non-residents with California source income.
Advanced RSU Tax Strategies That Save Real Money
While you can’t eliminate taxes on RSU income, strategic planning can significantly reduce your liability and prevent costly surprises. These strategies require careful timing and execution, but the savings can be substantial.
Pre-Vesting Tax Strategies
The most powerful tax strategies are implemented before your RSUs vest. Once vesting occurs, your options become limited, making advance planning crucial.
Strategic Relocation Timing can generate massive tax savings for those willing to relocate. The key is understanding how different states tax RSU income and timing your move strategically. If you’re planning to leave California, the timing relative to your RSU grant and vesting dates determines how much California can tax.
Moving before receiving an RSU grant eliminates California’s claim to that income entirely. If you’ve already received grants but haven’t vested, California will tax a portion based on the time you worked in the state. The formula is straightforward: (California workdays ÷ total workdays) × RSU value at vesting = California taxable income.
Consider a tech employee with a four-year RSU grant worth $1 million at vesting. If they work in California for the first year then move to Texas, California can only tax 25% of the RSUs ($250,000). At California’s rates, that’s a tax savings of approximately $100,000 compared to remaining in California for the full vesting period.
Deferred Compensation Elections offer another pre-vesting strategy, though they’re less common and require your employer’s participation. Some companies allow employees to defer RSU income to future years through a non-qualified deferred compensation plan. This strategy works well if you expect to be in a lower tax bracket in future years or plan to relocate to a lower-tax state.
The election must typically be made at least 12 months before vesting and must defer payment for at least five years. The complexity and restrictions mean this strategy isn’t suitable for everyone, but for those facing massive RSU vests in high-tax years, the savings can be substantial.
Bunching Deductions in high RSU income years maximizes their value. If you have flexibility in timing charitable contributions, property tax payments, or other deductible expenses, concentrate them in years with large RSU vests. A $50,000 charitable contribution saves $23,650 in taxes if you’re in the 47.3% combined marginal bracket (federal plus California).
At-Vesting Optimization Tactics
When your RSUs vest, several immediate decisions can significantly impact your tax liability.
Supplemental Withholding Elections allow you to increase withholding beyond the default rates. While employers must withhold at 22% federally and 10.23% for California, many allow employees to elect additional withholding. Increasing your withholding to match your marginal rate prevents underpayment penalties and large tax bills.
To implement this strategy, contact your equity administration team before vesting. Request additional withholding equal to the gap between default rates and your marginal rate. For someone in the 35% federal bracket, that means requesting an additional 13% federal withholding. While this reduces your immediate proceeds, it prevents a massive tax bill and potential penalties later.
Sell-to-Cover vs. Net Settlement choices affect your immediate tax situation and future flexibility. With sell-to-cover, your employer sells enough shares to cover withholding, and you receive the remaining shares. Net settlement means the company simply gives you fewer shares, keeping enough to cover withholding.
The tax treatment is identical, but sell-to-cover provides more flexibility. You can potentially direct the sale to specific lots for tax optimization, and you may have more control over the exact timing of the sale within the settlement period. For large vests, these small optimizations can save thousands.
Same-Day Sale Decisions require balancing tax efficiency against investment risk. Holding RSUs after vesting means any future appreciation is taxed as capital gains rather than ordinary income. Long-term capital gains rates (held over one year) are significantly lower than ordinary income rates.
However, concentration risk often outweighs tax benefits. If RSUs represent more than 10-15% of your net worth, the risk of holding usually exceeds potential tax savings. Many tech employees learned this lesson painfully when their company’s stock dropped 50% or more while they waited for long-term capital gains treatment.
Post-Vesting Tax Minimization
After your RSUs vest and you own the shares, additional strategies can reduce your overall tax burden.
Tax-Loss Harvesting can offset RSU income when done correctly. If you have investments with unrealized losses, selling them can offset the ordinary income from RSU vesting. Unlike capital losses offsetting capital gains, only $3,000 of capital losses can offset ordinary income per year, with excess losses carried forward.
Strategic tax-loss harvesting throughout the year, not just at year-end, maximizes this benefit. Be careful of wash sale rules—you cannot repurchase the same or substantially identical securities within 30 days before or after the sale. This includes your company stock, so if you’re still receiving RSUs, timing becomes critical.
Charitable Giving with Appreciated Shares provides double tax benefits. Instead of selling vested RSUs and donating cash, donate the shares directly. You avoid capital gains tax on the appreciation and still receive a charitable deduction for the full fair market value.
For example, if your RSUs vested at $100 and are now worth $150, donating the shares saves the capital gains tax on the $50 appreciation while providing a $150 charitable deduction. In California, this strategy can save over $10,000 per $100,000 donated compared to selling shares and donating cash.
Qualified Small Business Stock (QSBS) Planning applies if your company meets specific requirements. While RSUs themselves don’t qualify for QSBS treatment, understanding the interaction is crucial. If you exercise incentive stock options (ISOs) that qualify for QSBS and have RSUs vesting in the same year, careful planning can preserve QSBS benefits while managing AMT implications.
RSU Taxes During Major Career Events
Major career transitions and corporate events create unique RSU tax challenges requiring specialized planning and careful execution.
IPO or Direct Listing Scenarios
When your company goes public, RSU taxation becomes significantly more complex. The period surrounding an IPO requires careful planning to optimize taxes while navigating lock-up periods, blackout windows, and market volatility.
Pre-IPO Planning should begin 6-12 months before the expected public offering. First, understand your company’s RSU vesting acceleration terms. Some companies accelerate vesting upon IPO, creating a massive taxable event. Others maintain the original vesting schedule. Double-trigger RSUs, common in pre-IPO companies, vest only when both time-based requirements are met AND a liquidity event occurs.
Estimate your tax liability under different IPO scenarios. If your company is targeting a $50 per share IPO price, but comparable companies trade between $30 and $80, model your tax liability across this range. This preparation prevents scrambling for funds to pay taxes if the IPO prices higher than expected.
Consider establishing a 10b5-1 trading plan before the IPO. These plans allow you to schedule future stock sales according to predetermined criteria, enabling you to trade during blackout periods when you’d otherwise be restricted. For executives and employees with material non-public information, this may be the only way to diversify holdings systematically.
Lock-up Period Navigation typically restricts selling shares for 90-180 days post-IPO. Your RSUs may vest during this period, creating taxable income without the ability to sell shares for tax payments. This liquidity mismatch catches many employees unprepared.
Plan for lock-up period taxes by increasing W-4 withholding months in advance, saving cash from regular paychecks, or securing a line of credit backed by your vested shares. Some employers offer lock-up period loans or allow net settlement even during lock-up, taking shares to cover taxes while you cannot sell.
The lock-up expiration date often triggers significant stock price volatility. As employees become able to sell, supply increases can pressure the stock price. Consider whether to sell immediately at expiration or wait for potential price recovery. Remember, you’ve already paid ordinary income tax on the vesting value, so any decline from that price creates a capital loss that can offset other gains.
Post-IPO Tax Optimization continues long after the initial offering. Systematic diversification reduces concentration risk while managing tax impact. Rather than selling everything at once, consider spreading sales across multiple tax years to avoid pushing yourself into higher brackets.
If your company stock appreciates significantly post-IPO, you face a pleasant but complex problem. Shares that vested at $50 now trading at $200 have $150 of unrealized capital gains per share. Holding for long-term capital gains treatment saves significant taxes but increases risk. Consider a mixed strategy: sell enough to diversify and secure your financial foundation, while holding some shares for potential long-term appreciation.
Company Acquisition Tax Implications
Acquisitions create immediate tax consequences that vary dramatically based on deal structure. Understanding these implications before the deal closes is crucial for tax planning.
All-Cash Acquisitions trigger immediate taxation on all vested RSUs and potentially accelerate unvested RSUs. If your RSUs are worth $1 million and the acquisition closes December 30th, you have little time to plan for the tax impact. The entire amount becomes taxable in the current year, potentially pushing you into the highest tax brackets.
When facing an all-cash acquisition, immediately calculate your estimated tax liability and determine if withholding will be sufficient. Request maximum withholding from the transaction proceeds if possible. Consider whether to exercise any vested options before the deal closes, as the acquisition might terminate out-of-the-money options while RSUs are typically cashed out at the deal price.
Stock-for-Stock Exchanges may allow tax deferral if structured properly. If your RSUs are exchanged for acquirer RSUs on a one-for-one basis (or using a fixed exchange ratio), the exchange itself might not be taxable. You’ll pay taxes when the new RSUs vest according to their vesting schedule.
However, if your vested RSUs are exchanged for acquirer stock, you’ll owe taxes on the full value immediately. The tax basis in your new shares equals the amount on which you paid tax, and future appreciation is taxed as capital gains. Keep meticulous records of the exchange ratio and your basis in the new shares.
Mixed Consideration Deals combining cash and stock require careful allocation. Typically, the cash portion is taxable immediately while the stock portion may allow deferral. If you receive $500,000 cash and $500,000 in acquirer stock for your RSUs, you’ll owe immediate tax on the cash portion while the stock portion’s treatment depends on the deal structure.
International Assignments and Relocations
Tech companies increasingly offer international assignments, creating complex tax situations for employees with RSUs. These assignments can trigger tax obligations in multiple countries, requiring careful planning to avoid double taxation.
U.S. to Foreign Assignment Planning starts with understanding tax treaty provisions. The U.S. has tax treaties with many countries that can reduce or eliminate double taxation on RSU income. However, treaties are complex and country-specific. Some treaties allow you to claim foreign tax credits for taxes paid abroad, while others exempt certain income from taxation.
Timing your assignment relative to RSU vesting significantly impacts taxation. If you move to the UK before vesting, you’ll owe UK taxes on the RSU income. The UK’s top rate of 45% plus social insurance could exceed your U.S. tax rate. However, you can typically claim foreign tax credits on your U.S. return, potentially eliminating U.S. tax on that income.
Consider negotiating tax equalization or tax protection agreements with your employer. Tax equalization ensures you pay no more (and no less) than you would have paid remaining in the U.S., with your employer covering additional foreign taxes. Tax protection means your employer covers any additional tax burden from the assignment while you keep any tax savings.
H1-B and Visa Considerations add another layer of complexity. Your visa status affects your tax residency and treaty eligibility. H1-B holders are typically treated as U.S. tax residents after meeting the substantial presence test, meaning worldwide income is taxable in the U.S.
If you’re considering returning to your home country, timing matters enormously. Leaving the U.S. before vesting might allow you to avoid U.S. tax on future RSUs, depending on your visa status and tax treaties. However, California’s aggressive source income rules may still apply if you earned the RSUs while working in California.
Green card holders face additional considerations. Surrendering a green card can trigger exit tax on unrealized gains if you meet certain thresholds. This includes the built-in gain on unvested RSUs, potentially creating a massive tax bill on income you haven’t yet received.
Common RSU Tax Mistakes That Cost Thousands
Understanding what not to do is often as valuable as knowing the right strategies. These common mistakes can cost tech employees tens of thousands in unnecessary taxes and penalties.
Not Adjusting W-4 Withholding
The single most common and costly mistake is failing to adjust W-4 withholding to account for RSU income. Your regular paycheck withholding is calculated based on your salary alone. When RSUs vest, the additional income isn’t factored into your regular withholding calculations.
Many employees assume the 22% federal and 10.23% California withholding on RSUs is sufficient. It rarely is. If your marginal rate is 35% federal and 11.3% California, you’re under-withheld by approximately 14% on every dollar of RSU income. On $300,000 of RSUs, that’s $42,000 you’ll owe when filing taxes.
The solution is proactive W-4 adjustment. Submit a new W-4 claiming single with zero allowances, regardless of your actual status. Request additional flat dollar withholding per paycheck to cover the RSU tax gap. Calculate this by estimating your total tax liability, subtracting RSU withholding, then dividing the shortage by remaining pay periods.
Missing Quarterly Estimated Tax Payments
The IRS and California require quarterly tax payments if withholding won’t cover at least 90% of current year tax or 100% of prior year tax (110% for high earners). Missing these deadlines triggers underpayment penalties even if you pay in full when filing your return.
Quarterly deadlines aren’t evenly spaced: April 15, June 15, September 15, and January 15. The second quarter is only two months, catching many by surprise. Missing the June payment means penalties accrue for seven months until the January payment.
Calculate estimated payments based on your RSU vesting schedule. If RSUs vest quarterly, make estimated payments shortly after each vest when you have cash from selling shares. Don’t wait until the deadline if you have the funds available—early payment stops penalty accrual.
Triggering Unnecessary AMT
While RSUs themselves don’t create AMT issues, exercising incentive stock options (ISOs) in the same year as large RSU vests can trigger massive AMT liability. The combination of high ordinary income from RSUs and AMT adjustments from ISOs can create a perfect storm of tax liability.
AMT catches many by surprise because it’s calculated separately from regular tax, and you pay whichever is higher. RSU income increases your regular tax, potentially eliminating the benefit of exercising ISOs for long-term capital gains treatment. Worse, you might owe AMT on paper gains from ISOs while your RSUs already created a large regular tax bill.
Coordinate ISO exercises and RSU vesting carefully. In high RSU years, consider deferring ISO exercises. Alternatively, exercise ISOs early in January to maximize the time before taxes are due, giving you flexibility if stock prices decline.
Inadequate Record Keeping
Poor record keeping leads to overpaying taxes on every RSU sale after vesting. Your basis in RSU shares equals the amount included in income at vesting—essentially, the amount on which you already paid tax. Without proper records, you might pay tax twice on the same income.
Brokers report proceeds from stock sales but may not accurately track your basis, especially if shares transferred between accounts or brokers. The IRS assumes zero basis if you can’t document it, meaning you’d pay capital gains tax on the entire sale proceeds rather than just the appreciation.
Maintain a spreadsheet tracking every RSU vest: date, number of shares, price per share, amount included in income, and taxes withheld. When you sell, document which lots you’re selling and calculate gain or loss from your documented basis. This prevents overpaying and supports your tax return if questioned.
Holding Too Long for Tax Reasons
The allure of long-term capital gains rates causes many tech employees to hold RSU shares longer than prudent. Yes, long-term rates are lower than ordinary income rates, but the tax tail shouldn’t wag the investment dog.
Consider the math: RSUs that vest at $100 must appreciate to approximately $140 for the after-tax proceeds of a long-term sale to exceed an immediate sale, assuming you’re in the highest brackets. That’s a 40% return required just to break even after taxes. Meanwhile, you’re exposed to significant concentration risk.
Tech stocks are notoriously volatile. Many employees watched their company stock drop 50% or more while waiting for long-term treatment. The tax savings evaporated along with half their wealth. Diversification typically trumps tax optimization for concentrated positions exceeding 10-15% of net worth.
Your RSU Tax Action Plan
Taking control of your RSU taxes requires systematic planning and timely execution. Here’s your comprehensive action plan to minimize taxes and avoid surprises.
Immediate Actions to Take Today
Calculate Your Current Year Tax Liability using our RSU tax calculator. Input all RSUs vesting this year, not just recent vests. Include your full compensation picture: salary, bonus, and any other income. The calculator will show your expected tax liability and, more importantly, your withholding shortfall.
Review Your Recent Pay Stubs to understand current withholding levels. Look for lines showing federal and state tax withholding year-to-date. Compare this to the calculator’s tax liability estimate. The gap represents what you’ll owe when filing taxes.
Submit an Updated W-4 if you’re under-withheld by more than $1,000. Request maximum withholding by claiming single with zero allowances. Calculate additional per-paycheck withholding needed: divide your tax shortfall by remaining pay periods. Submit this to HR immediately—changes typically take one to two pay cycles to implement.
Set Up a Tax Reserve Account at a separate bank to hold tax funds. When RSUs vest and you sell shares, immediately transfer the expected tax shortfall to this account. Use a high-yield savings account to earn interest while the funds wait for tax payments. This prevents spending money you’ll need for taxes.
Quarterly Tax Planning Tasks
Review Year-to-Date Tax Situation each quarter as RSUs vest. Recalculate your annual tax liability with actual numbers replacing estimates. Adjust remaining quarterly payments if your situation changed significantly.
Make Estimated Tax Payments by the quarterly deadlines if withholding won’t cover 90% of current year tax. Pay immediately after RSU vests when you have funds available rather than waiting for deadlines. Use IRS Direct Pay for federal and California’s Web Pay for state payments—both provide immediate confirmation.
Evaluate Diversification Needs after each vesting event. Calculate your company stock concentration as a percentage of total net worth. If exceeding 10-15%, develop a systematic selling plan. Consider dollar-cost averaging out of the position over several months to reduce timing risk.
Harvest Tax Losses throughout the year, not just in December. Review your investment portfolio for unrealized losses that could offset RSU income. Sell losing positions and reinvest in similar but not identical investments to maintain market exposure while realizing tax benefits.
Annual Tax Optimization Strategies
Maximize Retirement Contributions to reduce taxable income in high RSU years. Max out your 401(k) contributions ($23,000 for 2024, plus $7,500 catch-up if over 50). If your employer offers after-tax 401(k) contributions with in-service conversions (mega-backdoor Roth), contribute up to the $69,000 total limit.
Time Charitable Contributions for maximum tax benefit. Bunch multiple years of charitable giving into high RSU income years. Consider a donor-advised fund to receive the immediate tax deduction while distributing to charities over time. Donate appreciated shares directly rather than cash to avoid capital gains tax.
Coordinate with Your Tax Professional before year-end to identify additional strategies. A qualified CPA can model different scenarios and identify opportunities specific to your situation. The cost of professional advice is typically a fraction of the tax savings achieved through proper planning.
Plan Next Year’s RSU Strategy during your annual tax preparation. Use this year’s experience to improve next year’s planning. Adjust W-4 withholding based on expected vests. Calendar quarterly payment deadlines and set reminders. Update your tax reserve funding strategy based on actual needs.
Frequently Asked Questions About RSU Taxes
How are RSUs taxed in California?
RSUs are taxed as ordinary income at vesting based on the fair market value of the shares. You’ll owe federal income tax (up to 37%), California state income tax (up to 13.3%), Social Security tax (6.2% on income up to $168,600 for 2024), Medicare tax (1.45% plus 0.9% additional Medicare tax for high earners), and California SDI (0.9% with no cap as of 2024). The combined tax rate can exceed 52% for high earners in California.
What is the RSU tax rate for high earners?
High earners face the highest marginal rates on RSU income. Federally, you’ll pay 35% on income between $243,725-$609,350 (single) or $487,450-$731,200 (married filing jointly), and 37% above those thresholds. California adds 11.3% for income between $398,169-$677,768 (single) and 12.3% between $677,768-$1,000,000, plus 13.3% over $1 million. Don’t forget Medicare surtax of 0.9% on income over $200,000 (single) or $250,000 (married filing jointly).
When do I pay taxes on RSUs?
You pay taxes when RSUs vest and convert to actual shares, not when granted. The taxable amount equals the number of shares vesting multiplied by the stock price on the vesting date. Your employer typically withholds taxes at vesting, but withholding is usually insufficient for high earners, requiring quarterly estimated tax payments to avoid penalties.
What’s the difference between RSU withholding and actual tax owed?
Withholding is a prepayment based on fixed rates (22% federal, 10.23% California), while actual tax owed depends on your marginal tax bracket. High earners typically owe more than withholding covers. For example, someone in the 35% federal bracket with California’s 11.3% rate owes 46.3% in combined taxes, but withholding is only 32.23%, creating a 14.07% gap.
Should I sell RSUs immediately or hold them?
This depends on your financial situation, risk tolerance, and company outlook. Immediate selling eliminates concentration risk and provides diversification. Holding allows potential appreciation taxed at favorable capital gains rates, but increases risk. Most financial advisors recommend selling at least enough to cover taxes and diversify if company stock exceeds 10-15% of net worth.
How can I reduce taxes on my RSUs?
While you cannot avoid ordinary income tax on vesting RSUs, strategies can minimize overall tax impact: maximize retirement contributions to reduce taxable income, time charitable deductions for high-income years, harvest investment losses to offset gains, adjust W-4 to avoid underpayment penalties, consider relocating to lower-tax states before vesting, and donate appreciated shares instead of cash for charitable giving.
What happens to RSU taxes if I move out of California?
California taxes RSUs based on the portion earned while a California resident. The state uses a formula: (California workdays ÷ total workdays from grant to vest) × RSU value. Moving before receiving grants avoids California tax entirely. Moving after grants but before vesting results in partial California taxation. Once you’re a non-resident, only California-source income is taxable.
How are RSUs taxed during an IPO?
IPO taxation depends on your RSU structure. Single-trigger RSUs are taxed as they vest normally, regardless of IPO timing. Double-trigger RSUs vest upon IPO (if time requirements are met), creating immediate taxable income. Lock-up periods don’t affect taxation timing—you owe taxes at vesting even if you cannot sell shares. Plan for this liquidity mismatch by saving cash or increasing withholding in advance.
Can I make an 83(b) election on RSUs?
Generally, no. The 83(b) election applies to restricted stock (actual shares subject to vesting), not RSUs (a promise to deliver shares later). However, if your company offers early exercise provisions converting RSUs to restricted stock, an 83(b) election might be possible. This is rare and requires careful analysis of risks versus potential tax benefits.
How do RSUs affect my tax bracket?
RSU income is added to your other income, potentially pushing you into higher tax brackets. This affects not only the RSUs themselves but also your other income. For example, if your salary puts you at the top of the 24% bracket, RSU income might push some salary into the 32% bracket. Consider this when planning withholding and estimated payments.
Are RSUs subject to AMT?
RSUs themselves don’t create AMT adjustments—they’re taxed as ordinary income for both regular and AMT purposes. However, large RSU income can affect your overall AMT calculation, potentially limiting other tax benefits. Be especially careful if you also have incentive stock options (ISOs), as the combination can trigger significant AMT liability.
What if I work remotely from another state?
Your tax treatment depends on your state of residence and where you perform services. California residents owe California tax on all RSU income, regardless of where they work. Non-residents working remotely for California companies might owe California tax on RSUs attributable to California services. Each state has different rules, potentially creating double taxation without proper planning.
How do I calculate quarterly estimated taxes on RSUs?
Calculate your total expected tax liability for the year, including RSU income. Subtract total withholding from all sources. Divide the shortfall by four for equal quarterly payments, or pay amounts based on when income is received. Safe harbor rules let you avoid penalties by paying 90% of current year tax or 110% of prior year tax (for high earners).
What happens to RSU taxes if I’m laid off?
Layoff terms determine tax treatment. Accelerated vesting triggers immediate taxation on all accelerated shares. Forfeited unvested RSUs create no tax consequences—you never receive the income. Continued vesting during severance periods is taxed normally as shares vest. Some packages allow extended exercise periods for options but RSUs typically forfeit if unvested at termination.
Should I elect additional RSU withholding?
Yes, if you’re in a tax bracket higher than 22% federal or 10.23% California. Request supplemental withholding matching your marginal rate to avoid quarterly payments and year-end surprises. Contact your equity administration team before vesting to arrange additional withholding. This reduces immediate proceeds but prevents large tax bills later.
Take Control of Your RSU Taxes Today
RSU taxation doesn’t have to be a source of stress and surprise tax bills. With proper planning and the right tools, you can minimize your tax liability, avoid costly penalties, and keep more of your hard-earned equity compensation.
Our RSU tax calculator provides the specific insights you need as a California tech professional. Unlike generic calculators, ours accounts for California’s unique tax landscape, including the 10.23% supplemental withholding rate, uncapped SDI tax, and complex residency rules. More importantly, it translates complex calculations into actionable recommendations specific to your situation.
The strategies outlined in this guide—from pre-vesting planning through post-sale optimization—can save tens of thousands in taxes. But timing is critical. Waiting until tax season to address RSU taxes means missing opportunities for withholding adjustments, estimated payments, and year-end planning strategies.
Your Next Steps
Start with Knowledge: Use our calculator above to understand your true tax liability. Input your specific numbers—RSUs vesting this year, salary, and other compensation. The results will show not just what you owe, but the gap between withholding and reality.
Take Immediate Action: If you’re under-withheld, don’t wait. Submit an updated W-4 today. Set up that tax reserve account. Calculate and make any required estimated tax payments. These simple steps prevent penalties and reduce stress.
Plan Strategically: RSU taxation is complex, but you don’t have to navigate it alone. Consider working with a tax professional who understands equity compensation. The cost of expert advice is typically a small fraction of the tax savings achieved through proper planning.
Stay Informed: Tax laws change, especially in California. Subscribe to our updates for the latest changes affecting tech employees with equity compensation. We’ll alert you to new planning opportunities and important deadlines.
Remember, every tech professional’s situation is unique. While this guide provides comprehensive information and strategies, your specific circumstances—income level, family situation, other investments, and financial goals—determine the optimal approach. Use our calculator as your starting point, but consider professional guidance for complex situations or large RSU vests.
The difference between reactive and proactive RSU tax planning can be tens or even hundreds of thousands of dollars. Don’t let another vesting period pass without understanding and optimizing your tax situation. Calculate your RSU taxes now, implement the strategies that apply to your situation, and take control of your equity compensation taxes today.
Disclaimer: This article provides general information about RSU taxation and should not be considered personal tax advice. Tax laws are complex and change frequently. Consult with a qualified tax professional for advice specific to your situation. The calculator provides estimates based on current tax rates and may not account for all aspects of your tax situation.