Stock Compensation Paycheck Impact

Example: You vest 1,000 shares worth $100,000. Your employer sells approximately 300 shares to cover $30,000 in taxes (30% total tax rate). You receive 700 shares worth $70,000.

• Regular paycheck unchanged: Your regular paycheck is not affected—you still receive your normal salary and bonus payments.
• Fewer shares received: You receive fewer shares than the number that vested—typically 60-75% of the shares, depending on your tax rate.
• Automatic tax payment: Taxes are paid automatically from the sale proceeds, so you don't need to come up with cash to pay taxes.

Example: You vest $100,000 in RSUs. Your employer withholds $30,000 from your regular paycheck, reducing your take-home pay for that period. You receive all 1,000 shares, but your paycheck is much smaller.

• Reduced paycheck: Your regular paycheck is significantly reduced for that pay period—sometimes to near zero if the vesting amount is large.
• All shares received: You receive all the shares that vested, but your cash flow is impacted immediately.
• Cash flow planning needed: You may need to plan for reduced cash flow, especially if you have large vesting events.

Our total compensation calculator can help you estimate the exact impact based on your specific situation, including your state, income level, and withholding method.

1. The fair market value of your vested shares
2. Federal income tax withholding (typically 22% or your marginal rate)
3. State income tax withholding (varies by state, 0-13%+)
4. Social Security tax (6.2% up to the wage base limit)
5. Medicare tax (1.45% + 0.9% for high earners)
6. The number of shares you'll actually receive (if sell-to-cover) or the impact on your paycheck (if paycheck withholding)

• Higher tax brackets: Push you into higher tax brackets: As your total income increases with each vesting event, you may move into higher federal and state tax brackets.
• Higher effective rate: Increase your effective tax rate: The more you vest, the higher your overall tax rate becomes, even if individual events are taxed at lower rates.
• Estimated payments: Require estimated tax payments: If your withholding doesn't cover your tax liability, you may need to make estimated tax payments to avoid underpayment penalties.

• Set aside cash: Set aside cash for taxes: If you're in a high tax bracket or high-tax state, set aside additional cash to cover potential tax bills beyond what's withheld.
• Know the method: Understand your employer's method: Know whether your employer uses sell-to-cover or paycheck withholding so you can plan accordingly.
• Plan for multiple events: Plan for multiple vesting events: If you have multiple grants vesting throughout the year, consider the cumulative tax impact when planning your budget.
• Estimated payments: Consider estimated tax payments: If you expect to owe significant additional tax, make estimated payments throughout the year to avoid penalties.

• Net worth: RSUs can represent a significant portion of your net worth, especially in tech companies. Diversification is important to manage risk.
• Tax liability: Large vesting events can create substantial tax liability, both in the current year and potentially in future years if you hold the shares.
• Cash flow: Depending on your employer's withholding method, vesting events can impact your immediate cash flow or your share ownership.