Your equity compensation could trigger a tax bill you didn't budget for.

Here's why.

For tech folks, the transition from salary to equity is a big adjustment for staying square with the tax authorities. If you're relying on standard payroll withholding and little to no professional help, you might be heading for an April (Tax) Surprise.

Here are the three most common reasons why:

🔹 RSU Withholding doesn't match your bracket. For federal taxes, companies typically withhold a flat 22% for supplemental income (or 37% once you cross the $1M mark). If your total income puts you in the 35% or 37% marginal federal bracket, you are under-withholding by up to 15% on every vest. If you don't bridge that gap in time with quarterly estimates, the IRS adds penalties. That's just federal, not to mention state tax rules.

🔹 Safe Harbor rules don't always save you. Don't assume that just paying 110% of last year's tax (for AGI >$150k) means you're "covered." Safe harbor only protects you from underpayment penalties. If you have a major liquidity event or stock vesting this year, you might avoid the penalty but still owe a big balance in April. Without a plan, that can create a cash crunch.

🔹 AMT can sneak up on you. If you're exercising ISOs, the spread between the strike price and fair market value can increase your AMT income. AMT can be triggered without realizing it until tax time—and in 2026, the AMT exemption begins phasing out at $500K (single) / $1M (married filing jointly), making it easier for high earners to run into AMT exposure.

If most of your compensation comes from equity, treating tax planning as a year-round exercise can save you from both penalties and stress.

For educational purposes only. Not tax, legal, or investment advice.