How do you properly withhold federal taxes from RSUs for accurate withholding?

Thanks for the detailed response. I never thought about varying the withholding rate throughout the year - that's a smart approach! Just to make sure I understand though, since my first RSU vest will already push me into a higher bracket when combined with my base salary, wouldn't I still need to withhold at the higher rate from the very first vest? Does the IRS look at income cumulatively throughout the year, or do they just care about the annual total when determining if you've withheld enough?

The IRS ultimately cares about your annual total when filing, but the withholding system is designed to work progressively throughout the year. Each paycheck (or vesting event) is treated as if you'll earn that same amount for the entire year, which is why supplemental income like RSUs is often initially over-withheld. For your first vest, you're right that it would immediately push you into a higher bracket when added to your base, but remember that you still have lower brackets "filled up" first. Your effective rate on that first vest would still be less than your marginal rate. If you want to be extra precise, you could create a spreadsheet that projects your income by pay period and vesting date, then calculate the cumulative tax obligation at each point to determine the optimal withholding for each vesting event.

Does it actually work with the specific stock portal systems different companies use? My employer uses E*TRADE and the interface is clunky when trying to adjust withholding rates before each vest.

I'm skeptical about tax tools handling RSUs correctly. Does it account for the fact that RSU value fluctuates? Like if I project $200k in RSUs but the stock tanks and they're only worth $150k at vest, wouldn't any pre-planned withholding strategy be wrong?

It doesn't directly interface with E*TRADE or other platforms - you still need to manually update your withholding preferences before each vest. The value is in telling you exactly what percentage to select for each vesting event based on your projected annual income. The tool does account for stock price fluctuations. You can update your projections if your company stock price changes significantly, and it will recalculate the optimal withholding strategy for remaining vests. That's actually one of the most valuable features - it helps you adjust your strategy mid-year if your income projection changes due to stock movement or other factors.

How exactly does this work? Do they just wait on hold for you or something? Seems weird that they could get through when normal people can't.

Yeah right. No way they can magically get through the IRS phone system when millions of people can't. This sounds like a scam to me. The IRS doesn't give "special access" to third parties for regular tax questions.

They use an automated system that navigates the IRS phone tree and waits on hold for you. When they reach a live agent, you get a call to connect you directly. It's not "special access" - they're just using technology to handle the hold time so you don't have to sit there waiting. They don't talk to the IRS for you or provide any tax advice - they just connect you with an actual IRS agent so you can ask your questions directly. For my RSU withholding questions, it was worth it to get definitive answers straight from the IRS rather than guessing or relying on potentially outdated online advice.

But doesn't this approach fall apart if your RSUs increase significantly from one year to the next? I'm looking at a 60% increase in RSU value for 2025 compared to 2024, so last year's effective rate seems like it would be too low.

You're absolutely right - significant changes in income require adjustments. In your case with a 60% increase in RSU value, you'd want to calculate a new estimated effective rate. A quick way to approximate this is to take your total projected income for 2025 and use an online tax calculator to estimate your total tax burden. Divide that by your projected income to get your estimated effective rate. That becomes your baseline withholding percentage, and then you can still use the buffer account approach for safety. The key is that withholding at your effective rate is generally more accurate than withholding at your marginal rate for every RSU vest. Your first dollars of income are still taxed at lower rates even when your total pushes you into higher brackets.

I use Schwab too. Pro tip: you can actually schedule a call with their equity compensation team ahead of each vesting date. I set calendar reminders 1 week before each vest to call and adjust my withholding rate. Takes 5 minutes once you have a system in place.

Thanks for the tip! I didn't know you could schedule calls with them. Do you need to have the exact withholding percentage figured out when you make the appointment or can you discuss options with them during the call? Definitely going to try this for my March vesting.