Don’t Mess Up Your Taxes!

This video segment offers critical tax advice for high-earning employees in big tech, particularly in the U.S. It emphasizes the importance of understanding how taxes work with equity compensation to avoid severe financial consequences.

• Set your withholding percentage close to your actual effective tax rate, which for many tech workers is around 30%. This helps avoid massive surprise tax bills—sometimes exceeding $100K—during tax season.
• RSUs (Restricted Stock Units) are taxed as income when they vest, not when they’re sold. If the stock value drops after vesting, you’re still taxed at the higher initial value, creating a potential mismatch between tax owed and actual value retained.
• Default withholding settings are often too low, especially on platforms like E*TRADE (commonly set at 22%). If not adjusted, this can lead to underpayment and steep penalties later.
• If RSUs lose value and you’ve under-withheld, you may be forced to sell more shares than expected just to cover your tax liability.
• Some intentionally under-withhold to invest the difference, but this is risky and should only be done with a clear financial strategy in mind.