Your company offers stock options, RSUs, and ESPP, but which one actually saves you money after taxes? Each equity benefit has different rules that change what you keep. Fort Mill tax experts break down the real costs. To learn more, visit https://abacustaxsc.com/
You just accepted a job offer with an impressive compensation package. Base salary, bonus, health benefits, and three different types of equity compensation. Stock options, restricted stock units, and an employee stock purchase plan. Your recruiter made it all sound amazing, but nobody explained what you actually take home after Uncle Sam gets his cut.
Let's talk about what these equity benefits really cost you in taxes, because the differences are bigger than most people realize. Starting with restricted stock units, which have become the most common form of equity pay. When your RSUs vest, the fair market value of those shares gets added to your W-2 as ordinary income. Your employer withholds some shares to cover taxes, usually at 22 percent federally, but that rarely matches your actual rate. If you're already in the 32 percent bracket, you'll owe more at tax time. After vesting, any gains or losses when you sell the shares are treated as capital gains. Simple structure, but the immediate tax hit catches people off guard.
Stock options work differently. With non-qualified stock options, you don't pay tax when you receive them. You pay ordinary income tax on the spread between your exercise price and the market value when you exercise. So if you buy shares at 10 dollars and they're worth 40 dollars, you owe tax on that 30-dollar gain. Then when you sell, you pay capital gains on any additional increase. Incentive stock options have better tax treatment if you meet the holding requirements, but they can trigger alternative minimum tax. Options give you more control over timing, which helps with tax planning, but they're also riskier if the stock price drops. Employee stock purchase plans let you buy company stock at a discount, typically 15 percent off the lower of two prices. The discount gets taxed as ordinary income when you sell, but if you hold the shares long enough, some of that gain converts to capital gains treatment. ESPPs offer guaranteed savings through the discount, which makes them the safest bet for most people. The tax hit is smaller and more predictable.
So which one pays off best? It depends on your tax bracket, risk tolerance, and what you do with the shares. High earners in expensive stock might prefer options for timing control. People who want simple, predictable gains often like ESPPs. RSUs work well if you're comfortable with immediate taxation and want guaranteed equity.
The team at Abacus Tax & Books works with professionals who receive all three types of equity pay. They can model the tax impact of your specific situation and help you decide when to exercise, sell, or hold. Visit the link in the description to learn more about equity compensation tax planning. Abacus Tax & Books City: Tega Cay Address: 1180 Stonecrest Blvd Website: https://abacustaxsc.com/ Phone: +1 803 548 1099 Email: info@abacustaxsc.com