RSU sale and w-4 adjustment?

[jmc23]

Hi there. 
Two questions at once please:

as part of my comp package at my job I have RSUs…the grant date was 12.22.22, the first (of a few, sequentially) vesting date is October 15th, 2023. I’m trying to make a good decision insofar as selling to lighten the tax liability…

my understanding is that the LTCG tax is 15%, the STCG is 22% based on my income level (about $84k).  
ao it appears I have enough time in calendar year 23 to sell them (on/after 12.23.23) in order to realize the better tax rate, right?

And, would adjusting my w-4 (currently filing  single, claiming 1) have any impact?

thank you!!

[JBedford]

Hi, @jmc23 ! You are correct that the long-term capital gains rate is advantageous. The actual rate varies based on your taxable income. You must hold them for longer than one year from the vesting date in order to qualify. 

As to adjusting your W-4, this won't have any impact on your overall tax liability. However, since selling the RSUs may generate additional taxable income, you may want to have more withholding to help cover this. Our free W-4 Calculator might be very helpful to you in making that decision. Hope this helps! 

[rschule1]

LTCG holding period would begin one year after vesting. However RSU are generally taxed as wages, so LTCG won't be much of a factor unless held for a long period of time after vesting, or unless the price of the stock sky rockets during holding period after vesting. Human resources should be able to tell you more.

[JBedford]

To be clear, RSUs are taxed as compensation (wages) when they vest. But if they are then sold, that is a separate transaction, and the gain on the sale will either be short- or long-term, depending upon the holding period. Thanks! 

[jmc23]

Ok, thanks.   So the ltcg tax comes into play one year from vesting date, not grant date?

[JBedford]

Correct! 

[jmc23]

Thanks.     Yes, I know that upon distribution the RSUs will have tax withheld to satisfy that obligation—so if I sell them whatever monies I realize are just garnished as ordinary income?

(first distribution is about 5k…so assuming I’m in the 22% tax bracket ?)

[JBedford]

Selling the RSUs is a transaction separate from them vesting. That sale will be taxed at either short-term rates (which is to say, as ordinary income), or long-term rates which as we've discussed, are advantageous. And your tax bracket is based on your total taxable income, from all sources. Make sense? 

[jmc23]

Hello yes all makes sense.   Still my company I believe holds back taxes on distribution.   So the remainder when sold would not be ordinary income?