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The RSU Tax Trap: Why You'll Owe the IRS Five Figures Next April (and How to Fix It Before December) · Align Your Retirement

• 0:00
  SPEAKER_00: Hey, welcome back to Align Your Retirement.
• 0:02
  SPEAKER_00: I'm Hazel Secko, CFP and a CDFA, founder of Align Financial Solutions, a fee-only fiduciary financial planning firm for executive women.
• 0:10
  SPEAKER_00: Today's episode is about a tax trap built into how your employer pays you.
• 0:15
  SPEAKER_00: One that quietly costs women with equity compensation five figures every April, and one you can still fix for this year if you act before December.
• 0:24
  SPEAKER_00: Let's get into it.
• 0:26
  SPEAKER_00: The gap in one minute.
• 0:27
  SPEAKER_00: Here is what actually happens on every vest.
• 0:31
  SPEAKER_00: Your employer withholds federal tax at a flat 22%.
• 0:35
  SPEAKER_00: That is the IRS default for supplemental wages under$1 million, written into IRS publication 15 for 2026.
• 0:43
  SPEAKER_00: Above a million, the mandatory rate jumps to 37%.
• 0:47
  SPEAKER_00: But if your marginal federal rate is 32%, you're short 10 cents on every dollar of vested stock.
• 0:54
  SPEAKER_00: If you're in the 37% top bracket, you're short 15 cents on every dollar.
• 0:59
  SPEAKER_00: On$200,000 of RSU vests in a year, that is$20,000 to$30,000 in underwithheld tax every year and it stacks and it compounds.
• 1:11
  SPEAKER_00: If your modified adjusted gross income crosses$200,000 single or$250,000 married, you also owe the 3.8% net investment income tax on your investment income.
• 1:24
  SPEAKER_00: Those thresholds have been frozen since 2013.
• 1:27
  SPEAKER_00: They never adjust for inflation.
• 1:28
  SPEAKER_00: So every year, more high-earning women quietly pay the NIIT, so NIT without ever hearing the term.
• 1:35
  SPEAKER_00: So why isn't anyone telling you this is happening?
• 1:38
  SPEAKER_00: Your HR team is not a tax planner.
• 1:41
  SPEAKER_00: They manage the equity program.
• 1:43
  SPEAKER_00: And when you ask them about withholding, they'll provide you with the information as they understand it that taxes are being withheld.
• 1:50
  SPEAKER_00: However, they will not tell you the withholding grade is essentially a minimum, not a match for your actual tax rate.
• 1:57
  SPEAKER_00: They don't know your specific tax bracket, and it is not their responsibility.
• 2:01
  SPEAKER_00: Similarly, your equity platform, whether it's Fidelity Schwab or e-Trade, is not obligated to explain this to you either.
• 2:08
  SPEAKER_00: Their role is to execute the vesting of shares and report the transactions.
• 2:12
  SPEAKER_00: They will provide you with a 1099 B in January and consider their job done.
• 2:18
  SPEAKER_00: And your CPA isn't going to proactively prevent this issue either.
• 2:22
  SPEAKER_00: They're paid to file your tax return accurately.
• 2:24
  SPEAKER_00: When they notice the shortfall in March, they will report it, attach the underpayment penalty, and move on.
• 2:31
  SPEAKER_00: This process is simply tax filing, telling you in July that you are going to owe$24,000 next April and helping you address it in August.
• 2:41
  SPEAKER_00: That is true tax planning.
• 2:43
  SPEAKER_00: It's a separate job, and unfortunately for many women, this critical planning is often overlooked.
• 2:49
  SPEAKER_00: So let me show you the two moves that diffuse it, starting with the one that stops up bleeding this year.
• 2:56
  SPEAKER_00: Move one.
• 2:57
  SPEAKER_00: Close the withholding gap.
• 2:59
  SPEAKER_00: If you do not fix this, nothing else matters.
• 3:01
  SPEAKER_00: The mistake is assuming your employer's withholding is good enough.
• 3:05
  SPEAKER_00: It isn't.
• 3:06
  SPEAKER_00: The 22% flat rate is a floor, not a match.
• 3:09
  SPEAKER_00: And because your pay stuff shows taxes coming out, your brain files it as handled.
• 3:14
  SPEAKER_00: It is not handled.
• 3:15
  SPEAKER_00: It is underhandled by design.
• 3:17
  SPEAKER_00: You close a gap one of three ways, or a combination.
• 3:21
  SPEAKER_00: Option A.
• 3:22
  SPEAKER_00: Bump your W4.
• 3:24
  SPEAKER_00: File a new W4 with your employer and request additional federal withholding per paycheck.
• 3:29
  SPEAKER_00: Simplest fix shows up automatically every payday.
• 3:33
  SPEAKER_00: Option B, quarterly estimated tax payments.
• 3:37
  SPEAKER_00: You pay the IRS directly via form 1040 ES on the four deadlines.
• 3:42
  SPEAKER_00: This is the cleanest fix for big quarterly vest because you size each payment to the vest that just happened.
• 3:49
  SPEAKER_00: Option C, sell to cover plus a supplemental sell.
• 3:53
  SPEAKER_00: Most employers already sell a slice of each vest to cover the 22%, but you also sell an additional tranche to cover the gap between 22% and your actual marginal rate.
• 4:04
  SPEAKER_00: The extra sale shows up as a short-term gain of essentially zero because you're selling at the vest price.
• 4:11
  SPEAKER_00: Here is an example.
• 4:12
  SPEAKER_00: A VP at a biotech company has$280,000 in RSU's vesting across four quarters.
• 4:18
  SPEAKER_00: Federal marginal rate, 35%.
• 4:21
  SPEAKER_00: Her employer withholds the standard 22%, which is$61,600.
• 4:26
  SPEAKER_00: Her actual federal liability on those vests is about$98,000.
• 4:31
  SPEAKER_00: So the gap is$36,400.
• 4:35
  SPEAKER_00: Add state tax and the knit she had not budgeted for, and her April shortfall is roughly$48,000.
• 4:43
  SPEAKER_00: We moved her onto quarterly estimates starting in Q2 when her return filed.
• 4:48
  SPEAKER_00: She owed about$1,200, not$48,000.
• 4:52
  SPEAKER_00: Same income, same vest, different structure.
• 4:55
  SPEAKER_00: Move two.
• 5:00
  SPEAKER_00: The mistake is treating each vest as a decision.
• 5:04
  SPEAKER_00: The vest hits your brokerage, you look at the price, you think maybe it'll go up, and you hold.
• 5:09
  SPEAKER_00: Multiply that by every vest over three years, and you've accidentally built a half million dollar concentrated position in the one company that also pays your salary.
• 5:20
  SPEAKER_00: Paycheck and portfolio writing on the same employer.
• 5:23
  SPEAKER_00: That is double exposure.
• 5:24
  SPEAKER_00: Try this question.
• 5:26
  SPEAKER_00: If someone handed you$280,000 in after tax cash this year, would you use every single dollar to buy shares of your employer?
• 5:34
  SPEAKER_00: Of course not.
• 5:35
  SPEAKER_00: But by holding your vest, that is exactly what you're doing.
• 5:39
  SPEAKER_00: You just never consciously made the decision.
• 5:41
  SPEAKER_00: The rule sell on vest unless one of three written reasons applies.
• 5:46
  SPEAKER_00: One, you're in a trading blackout and legally cannot sell.
• 5:50
  SPEAKER_00: Two, a tax-favored holding period genuinely applies and you are weeks from it.
• 5:55
  SPEAKER_00: Three, you have a written concentration limit, say no more than 10% of my net worth in employer stock, and you're still under it.
• 6:04
  SPEAKER_00: Otherwise, you sell on VEST and diversify.
• 6:06
  SPEAKER_00: The sale creates almost no gain because your basis is the VEST price and you're selling immediately.
• 6:13
  SPEAKER_00: One warning when you sell the double tax trap.
• 6:16
  SPEAKER_00: Brokerages sometimes report your cost basis as zero on the 1099B, leaving off the value you already paid tax on at vesting.
• 6:24
  SPEAKER_00: If nobody catches it, you get taxed twice on the same money.
• 6:27
  SPEAKER_00: Keep your VES records and make sure the basis on the 1099B reflects the VEST date value, not zero.
• 6:35
  SPEAKER_00: This one line item quietly costs people thousands.
• 6:38
  SPEAKER_00: The landing.
• 6:40
  SPEAKER_00: The RSU tax mistake is two problems stacked on top of each other.
• 6:44
  SPEAKER_00: The withholding gap, structural, fixable today, and the hold for patients trap, psychological, fixable with a written rule.
• 6:52
  SPEAKER_00: Do both, and the surprise stops being a surprise.
• 6:55
  SPEAKER_00: You know what you owe, you have already paid it, and your portfolio isn't writing on your employer.
• 7:00
  SPEAKER_00: Do neither.
• 7:01
  SPEAKER_00: You'll write a surprise check to the IRS every April for as long as you have equity compensation.
• 7:07
  SPEAKER_00: And it gets bigger as your grants get bigger.
• 7:10
  SPEAKER_00: One more thing for those listening.
• 7:24
  SPEAKER_00: Your brain has been trained for 30 years to buy and hold, and now it is refusing to sell shares your employer is essentially giving you.
• 7:32
  SPEAKER_00: But that is exactly the trap.
• 7:33
  SPEAKER_00: The comfort of holding is what builds the concentration problem.
• 7:37
  SPEAKER_00: And when the stock drops 20 or 30%, and stocks do, the very shares that felt like patience become the shares that cost you the most.
• 7:46
  SPEAKER_00: The women who do this well are the ones who can hold two things at once.
• 7:51
  SPEAKER_00: Yes, holding feels responsible, and yes, holding is quietly building a risk I would never have chosen if someone handed me the cash.
• 7:58
  SPEAKER_00: You don't have to sell everything.
• 8:00
  SPEAKER_00: You just have to stop letting the vest pile up on autopilot.
• 8:03
  SPEAKER_00: Find your number today.
• 8:05
  SPEAKER_00: Open your equity portal, find your year-to-date RSU vest total, and multiply by 0.13 if you are in the 35% bracket, or 0.15 if you are in the 37.
• 8:18
  SPEAKER_00: That is the approximate check you are writing next April 15th if you change nothing between now and December.
• 8:25
  SPEAKER_00: 10 minutes.
• 8:26
  SPEAKER_00: Pick one of the three withholding fixes and start it this week.
• 8:30
  SPEAKER_00: New W4, quarterly estimated tax payment, or a supplemental sell to cover, any one of them is dramatically better than doing nothing.
• 8:38
  SPEAKER_00: Do not wait for your CPA to tell you in March.
• 8:41
  SPEAKER_00: Write your sell on vest rule down.
• 8:43
  SPEAKER_00: Not in your head, on paper.
• 8:45
  SPEAKER_00: Include the three exceptions.
• 8:47
  SPEAKER_00: The next time a vest hits and your brain says, maybe it'll go up, you read the rule, not the price.
• 8:52
  SPEAKER_00: If you want the third piece to this, the multi-year bracket plan that connects your equity comp to your retirement.
• 8:59
  SPEAKER_00: I'm covering that in the next video.
• 9:00
  SPEAKER_00: Roth conversions in low income years, donor advice funds in high income years, and the knit and irma cliffs to watch for.
• 9:08
  SPEAKER_00: The biggest piece of that is the Roth conversion window.
• 9:11
  SPEAKER_00: I'll link it right here.
• 9:12
  SPEAKER_00: Watch that next if you want the full picture.
• 9:15
  SPEAKER_00: If you want everything I know about tax planning in one place, I put together a free retirement tax playbook.
• 9:21
  SPEAKER_00: It walks you through the specific strategies, the timing decisions, and the mistakes that quietly cost high earners the most.
• 9:28
  SPEAKER_00: The link is in the description.
• 9:29
  SPEAKER_00: And if you want someone to run your actual VES schedule through this framework, your exact gap, your concentration risk, and your conversion windows, I offer a free align call.
• 9:40
  SPEAKER_00: The link is right there too.
• 9:42
  SPEAKER_00: No pressure, no product sales.
• 9:43
  SPEAKER_00: I'm a fee only fiduciary financial planner.
• 9:46
  SPEAKER_00: Whether we work together or not, you will walk away with clarity on your best next step.
• 9:50
  SPEAKER_00: Follow align your retirement wherever you listen.
• 9:53
  SPEAKER_00: I'm Hazel Secko.
• 9:54
  SPEAKER_00: Retirement is too important to wing.
• 9:56
  SPEAKER_00: I'll see you next time.