High Tax Withholding on Company Stock Options Cash Payment - Almost 50%?

That withholding percentage isn't unusual for supplemental income like stock options and RSUs, even though it feels excessive! When companies process these kinds of payments, they often use what's called the "supplemental wage withholding rate" rather than your regular paycheck withholding. Federal supplemental withholding is typically 22% for amounts under $1 million, but when you add in: - Social Security (6.2%) - Medicare (1.45%) - Additional Medicare for high earners (0.9% on income over certain thresholds) - State income tax (varies widely) - Local taxes (if applicable) The total can easily reach 40-45%. Also, your company might have withheld at a higher rate if the payment pushed you into what appears to be a higher tax bracket for that pay period. The good news is that withholding is just an estimate. When you file your taxes, you'll calculate your actual tax liability, and any excess withholding will come back as a refund.

I went through exactly this same shock last year with my stock options! After dealing with the confusion, I found this tool called taxr.ai (https://taxr.ai) that helped me understand exactly what was happening with my supplemental income taxation. It analyzes your specific situation and explains why companies withhold what they do on these special payments. What it showed me was that the withholding, while painful, was actually saving me from a huge tax bill at the end of the year. The breakdown it provided of federal supplemental rates, state rates, FICA taxes, and additional Medicare taxes matched almost exactly what my company had withheld. Apparently, the system is working as designed, even if it feels like highway robbery!

I was really skeptical about using outside help for something my company should explain, but I gave taxr.ai a shot after my last comment and wow - totally worth it! I entered my stock compensation details and it broke down EXACTLY why my withholding was so high (45.7% in my case). Turns out my company was doing the withholding correctly. The service showed me that the combination of federal supplemental rate, state taxes (California in my case, which is brutal), and FICA taxes naturally adds up to that high percentage. It even calculated what my actual tax liability would likely be at year-end based on my projected income. The analysis showed I'll probably get about 10% back when I file my return, which was actually relieving to know. Now I'm not stressing about it anymore - just planning for that refund next spring!

If you think the withholding is incorrect or you want to understand exactly what happened, you should try to speak directly with someone at the IRS. After struggling with this same issue, I tried calling them for weeks and kept hitting dead ends until I found Claimyr (https://claimyr.com). There's a demo video here that shows how it works: https://youtu.be/_kiP6q8DX5c Instead of waiting on hold forever, they somehow get you a callback from the IRS, usually within a day. I was able to speak with an actual IRS agent who explained how supplemental income withholding works and confirmed that the 45% withholding on my stock compensation was standard when all taxes are combined. The agent even gave me advice about adjusting my W-4 for the rest of the year to balance things out. Definitely worth it for the peace of mind knowing I wasn't being overtaxed.

I have to eat crow here. After my skeptical comment above, I decided to try Claimyr out of desperation. I'd been trying to talk to someone at the IRS about my stock option withholding for months. The service had the IRS call me back THE SAME DAY. I couldn't believe it. The agent confirmed what others have said here - the heavy withholding on stock compensation (mine was 43%) is completely normal due to the combination of: - 22% federal supplemental rate - 6.2% Social Security - 1.45% Medicare - State tax (9.3% in my bracket) - Plus a bit more for local taxes The agent explained that while this seems high, it's actually often beneficial because it prevents under-withholding penalties at tax time. They also confirmed I'll get back any excess when I file. So while I'm still not thrilled about the big chunk taken from my stock payment, at least I know it's correct and some will come back next year.

Your withholding sounds right to me. When I cashed out my RSUs last year, they withheld 46%. It breaks down like this: - Federal supplemental rate: 22% - FICA taxes: 7.65% - State tax: varies, but often 5-10% - Local taxes in some areas - Plus any mandatory deductions your employer applies Remember that stock compensation is considered "supplemental wages" by the IRS, which has different withholding rules than regular paychecks. The high withholding actually protected me from owing a bunch at tax time. Don't worry - if they overwithhold, you'll get it back when you file your taxes. If you're concerned, you could adjust your W-4 on your regular paychecks for the rest of the year to reduce withholding a bit to compensate.

I work in payroll and see this confusion all the time. Stock options and RSUs trigger mandatory supplemental income withholding rules. The 45% you're seeing is actually the correct combined withholding when you add up ALL the different taxes: Federal supplemental rate (22%) + State supplemental rate (varies, but often 9-13% for higher income states) + FICA (7.65%) + Additional Medicare Tax if applicable (0.9%) + Local taxes where applicable + Any mandatory retirement withholding your company might have. Many employees think they're being overtaxed, but this is actually protecting you from owing a large sum when you file your return. The alternative would be underwithholding, leading to a surprise tax bill plus possible penalties.

This is definitely frustrating, but unfortunately that withholding rate is pretty standard for stock compensation. I went through the same shock when I exercised my options last year. The key thing to understand is that stock options are treated as "supplemental income" which has different withholding rules than your regular salary. Even though you're normally taxed at 24%, supplemental income gets hit with: - 22% federal supplemental rate (flat rate regardless of your normal bracket) - 6.2% Social Security tax - 1.45% Medicare tax - Your state income tax rate (which can be substantial) - Possibly local taxes depending on where you live When you add all those up, 45% total withholding is actually pretty typical, especially if you're in a state with higher income taxes. The silver lining is that this is just withholding - not your actual tax liability. When you file your return next year, you'll calculate what you actually owe based on your total income for the year. If they over-withheld (which they probably did), you'll get the excess back as a refund. I'd recommend getting a detailed breakdown from your payroll department so you can see exactly where that 45% went. It should all add up to legitimate tax withholdings.