By Todd Stankiewicz | CIO, SYKON Capital | Portfolio Manager, Free Markets ETF (FMKT)

Todd Stankiewicz, CFP®, EA and founder of SYKON Capital, explains a common tax issue high earners face with equity compensation: the gap that can arise between the 22%¹ supplemental withholding rate applied to many RSU events and the tax ultimately owed. Here is how SYKON Capital monitors that gap throughout the year and helps clients evaluate estimated tax obligations and applicable IRS safe harbor thresholds.²


The gap that can arise between the 22%¹ supplemental withholding rate applied to many RSU events and the tax ultimately owed. Here is how SYKON Capital monitors that gap throughout the year and helps clients evaluate estimated tax obligations and applicable IRS safe harbor thresholds.

A common and potentially costly issue with RSU compensation is under withholding, and many clients do not realize it is happening until they are facing a larger-than-expected tax bill in April.

Here is the core issue: when RSUs vest, many companies withhold federal income tax at the IRS supplemental wage rate of 22%¹. For taxpayers in higher marginal brackets, that can create a gap between what is withheld and what is ultimately owed. When that happens across multiple vesting events in a single year, the shortfall can become meaningful.

That gap can create two separate issues. The first is a larger tax bill at filing. The second is potential underpayment penalties if enough tax was not paid during the year at the appropriate intervals. The IRS provides safe harbor rules that may help taxpayers potentially avoid those penalties,2 but applying them properly usually requires ongoing projection and monitoring, not just a year-end review.

At SYKON Capital, we track projected income, withholding levels, and vesting schedules on a rolling basis throughout the year. We evaluate estimated tax obligations, review safe harbor thresholds, adjust estimated payment timing as needed, and coordinate with payroll withholding where possible. It is a moving target, especially in years where income is variable, but identifying the gap early may be less disruptive than discovering a significant underpayment after the year closes.

RSU vesting can also create concentration risk. When vested shares are not immediately sold, that single-company position can quietly grow to represent a meaningful portion of a client's total net worth. Managing both the tax exposure and the portfolio concentration at the same time is a planning issue we often address with high-income clients.


<sup>Sources:
1. Internal Revenue Service, Publication 15-A, Employer's Supplemental Tax Guide, supplemental wage withholding rate.
2. Internal Revenue Service, Publication 505, Tax Withholding and Estimated Tax, underpayment penalties and safe harbor rules.

Todd Stankiewicz is a licensed Enrolled Agent and CFP®, professional. This content is for educational purposes and does not constitute specific tax or financial advice. Please consult a qualified professional for personalized advice

Advisory Services offered through SYKON Capital LLC, a registered investment advisor with the U.S. Securities and Exchange Commission. This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor. The information contained in this presentation has been compiled from third party sources and is believed to be reliable as of the date of this report. Sources are provided for informational purposes only. The author or firm may have a financial interest in the topics discussed. Past performance is not indicative of future returns and diversification neither assures a profit nor guarantees against loss in a declining market. Investments involve risk and are not guaranteed.

This content is provided by SYKON Capital LLC, which may receive compensation for services. The views expressed are for informational purposes and do not constitute an endorsement or recommendation.</sup>