How do I ensure I won't be hit with a tax bill when my RSUs vest in 2023? My employer withholds 22% for fed. How do I know if I should withhold more (and how much more)?

[gennyburleson-gm]

It seems from speaking with employees of my company, most are hit with a big tax bill when the RSUs vest because not enough tax was taken out (22%). How do I determine if that's enough tax for me? If I need to withhold more, what do I do and how do I determine that amount? Is it better to adjust my withholding, or pay quarterly? Do I need to consider the potential bonus, merit increase and additional RSU vests I would get in 2023 as well?

[Critter-3]

Valid options are :  withhold more from your paycheck, withhold more from the vesting, send in estimated payment(s) or set some aside for the upcoming tax bill in April.  

To avoid an underpayment penalty ... so even if you owe on the return you will not also owe a penalty. 

You must make quarterly estimated tax payments (or increase your withholding)  for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

- 2. You expect your withholding and credits to be less than the smaller of:

    90% of the tax to be shown on your current year’s tax return, or

  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months).

[Critter-3]

If you can ... use one of the downloaded programs ( Deluxe if you need a state return or Basic if you don't) so you can have access to the WHAT IF tool all year where you can figure out all year how you are standing and if an extimate will be needed.   AND  it is cheaper than the online program especially if you look for deals outside of TT ... just use a reputable reseller. 

Where can I buy the TurboTax software?

Current-year TurboTax software can be purchased at:

• TurboTax.com
• Popular retail and electronics stores like Costco, Staples, Target, Sam’s Club, Office DepotMax, BJ’s Warehouse, Fry’s, and Meijer
• Select online stores such as Amazon.com

TurboTax software for the last 3 tax years is also available at TurboTax.com.

Related Information:

• Where can I find TurboTax prices?
• Do I need to buy a new TurboTax program every year?

Be very aware that if you find a "too good to be true price" from an unknown seller then it is too good to be true ... unauthorized resellers often sell pirated versions that can contain malware &/or spyware among other things. Caveat Emptor… let the buyer beware. 

[Mike9241]

Do I need to consider the potential bonus, merit increase and additional RSU vests I would get in 2023 as well?

Yes you do.

different taxpayers have different opinions. some don't mind owing a lot come 4/15 provided there are no penalties. their thought is that paying more than required early in the year allows the government to hold their money for free. others just don't like owing

here's how to avoid federal penalties though you might owe a lot come 4/15.

There will be no federal penalties for not paying in enough taxes during the year if withholding

1) and timely estimated tax payments equal or exceed 90% of your 2022 tax or

2) and timely estimated tax payments equal or exceed 100% of your 2021 tax (110% if your 2021 adjusted gross income was more than $150K) or

3) the balance due after subtracting taxes withheld from 90% of your 2022 tax is less than $1,000 or

4) your total taxes are less than $1,000

the lower of 1 or 2 is your required annual payment.  under the simplified method for estimated tax penalties, 25% of this amount must be paid in by 4/18, 50% by 6/15, 75% by 9/15 and 100% by year-end.

failing this and being subject to penalties you can use the annualized installment income method. 

this method requires knowing your income and deductions thru 3/31, then 5/31, then 8/31, and finally year end which should be the same as the tax return. the income is annualized. taxes are computed on the annualized income and then de- annualized. your tax payments for each period must equal or exceed these amounts to avoid penalties

form 2210 page 3

https://www.irs.gov/pub/irs-pdf/f2210.pdf   

state laws vary

for Federal, I suggest using 110% of your 2022 taxes. as your target. you can either 1) have your withholding adjusted or 2) a combination of withholding and estimated tax payments. you would need to know you 2022 tax. multiply by 1.1. you need a fairly accurate estimate of what your withholding is going to be. (note when those RSU's vest usually some are sold to cover the withholding and fica and medicare taxes.

required).  you subtract the withholding from the 110% calculated and this is your estimated tax requirement.

1/4 of which must be paid on 4/17/2023, 6/15/2023, 9/15/2023 and 1/15/22024.

note as stated above you might owe a lot but no penalties.

if you don't want to possibly owe a lot sell some more RSUs and have the proceeds withheld. discuss with the department that handles RSUs 

we know nothing about your income or deductions but there is a section in Turbotax in the estimated tax section that will allow you to calculate an estimate of your 2023 tax bill and withholding/estimated tax requirements for 2023.  its accuracy depends on how accurate the numbers you use are.

as a wild guess, you can continue your regular payroll withholding and then have 40% withheld for federal purposes when the RSUs vest.  again talk to payroll or the human resource department.

if you have a state income tax, you'll have to tel us the state and then wait for someone to respond,

others may make their suggestion.  it's really a guessing game if you don't want to owe a lot

i

[fanfare]

what is your tax bracket?

If you are in the 24% bracket rather than 22% then you will be short at tax time.

OR, a large amount vesting could put some or all your vesting in a much higher bracket , 32% or higher.