re #3, if your RSU windfall is substantially large, you might be eligible for the 100%/110% safe harbor that won't penalize you for tax underpayments (assuming you are a US taxpayer)
e.g., you make $200K in 2024 and $5 million in 2025 (which includes the RSU windfall). Assuming you pay at least 110% of what you paid in taxes in 2024 in 2025, you need not pay estimated tax or anything beyond statutory withholding amounts on the RSU windfall, and can just make up the 6 or 7 figures of tax owed at tax settlement time (e.g., by April 15/16 after the tax year in question). This is the optimal strategy, you can just park the money for tax owed in a close to as risk-free investment as possible in the meantime.
Statutory withholding rates might be higher; e.g., at my employer, if your RSU earnings are below $1 million, you can set your federal withholding as low as 22%. If your earnings are above $1 million, you are stuck with the 37% mandatory federal withholding rate (both done by sell to cover). This does not include per-state withholding minima, which can vary widely.
The issue is not that they want their withholding to be correct for the taxes they owe. The issue is the company needs to follow the withholding rules, and probably for cashflow reasons or maybe for tricky equity law reasons, would like the former employee to provide the withholding, rather than a net share settlement or sell to cover.
This should count as a supplemental wage payment. The 22% rate for supplemental wages only applies if income is under $1M and the person was paid wages by the employer this year or last; details in publication 15 https://www.irs.gov/publications/p15#en_US_2025_publink10002...
Thanks for mentioning the safe harbor rule. We are actually aware of that.
The issue here is that the company is asking the payment directly to the company's bank account, or the RSUs will be forfeited forever. This makes the situation much worse IMHO.
Right, the safe harbor rule isn't relevant here. The company is required to do withholding at the time the shares are delivered to you. They've chosen the most burdensome method for you as the only option. I'm not sure there's a way to legally force them to allow a sell-to-cover option, but I really hope so for y'all's sake. This feels really shady.
e.g., you make $200K in 2024 and $5 million in 2025 (which includes the RSU windfall). Assuming you pay at least 110% of what you paid in taxes in 2024 in 2025, you need not pay estimated tax or anything beyond statutory withholding amounts on the RSU windfall, and can just make up the 6 or 7 figures of tax owed at tax settlement time (e.g., by April 15/16 after the tax year in question). This is the optimal strategy, you can just park the money for tax owed in a close to as risk-free investment as possible in the meantime.
Statutory withholding rates might be higher; e.g., at my employer, if your RSU earnings are below $1 million, you can set your federal withholding as low as 22%. If your earnings are above $1 million, you are stuck with the 37% mandatory federal withholding rate (both done by sell to cover). This does not include per-state withholding minima, which can vary widely.