How to Estimate Taxes on Equity Compensation
A practical worksheet for RSU vests, NSO exercises, and ISO AMT. Combine equity income with salary to find your marginal rate and avoid year-end surprises.
Equity compensation makes tax projection harder because the big numbers often arrive in lumps — a vest in March, an option exercise in June, a bonus in December. Salary withholding is tuned for steady paychecks, not $100,000 RSU events.
A workable estimate combines all taxable events into projected AGI, finds your marginal bracket, and compares total tax to total withholding. You don't need tax software — a spreadsheet and last year's return get you most of the way there.
The goal is a number you can act on: extra withholding, estimated payments, or a sell-at-vest election before December.
Gather your inputs
Salary and bonus: use YTD pay stubs plus remaining pay periods. Include 401(k) pre-tax contributions — they reduce W-2 wages but not always AGI calculations the same way for all credits.
RSU vests: list each scheduled vest date and expected share count. Use current stock price as a proxy or your company's forecast if public. FMV × shares = ordinary income per vest.
Option exercises: for NSOs, spread at exercise is ordinary income. For ISOs, add spread to AMT projection (Form 6251), not regular income — unless you plan a disqualifying sale same year.
Build projected AGI
Add wages, RSU vest FMV, NSO spreads, other income (interest, rental, spouse wages). Subtract above-the-line deductions (HSA, IRA if deductible, half SE tax if self-employed on the side).
Don't subtract 401(k) again if it's already out of Box 1 wages. Do subtract standard or itemized deductions to get taxable income, then apply tax brackets for federal.
Add state tax using your state's brackets or flat rate. Some states (CA, NY, NJ) tax equity compensation aggressively; others (TX, WA, FL) have no state income tax on wages.
Marginal rate vs effective rate
Use marginal rate for the next dollar of RSU income — that's what you owe on an additional vest. In 2025, federal brackets for single filers top out at 37% above $626,350.
Effective rate (total tax ÷ total income) is useful for budgeting but understates the cost of a large vest if it sits in your highest bracket.
Watch bracket cliffs: NIIT (3.8%) kicks in at $200,000 AGI (single), child tax credit phases out, Roth IRA eligibility disappears. Equity income can trigger these even when salary alone wouldn't.
Compare to withholding
Sum federal and state withholding from pay stubs, RSU vest confirmations, and prior estimated payments. Compare to projected total tax.
If projected tax exceeds withholding by more than safe harbor allows, schedule estimated payments or increase W-4 elections.
Remember RSU supplemental withholding at 22% — explicitly add the expected gap to your 'amount still due' column.
Update quarterly
Re-run the estimate after each vest, exercise, or job change. Stock price moves change RSU tax for unvested tranches you haven't sold yet — only vested FMV is locked in.
Q3 (September) is the last practical window to adjust withholding or make estimated payments for calendar-year filers before the final January 15 payment.
Save your assumptions (stock price, vest counts, exercise dates) so you can reconcile when 1099-B and W-2 arrive in January.
Key takeaways
- List every vest and exercise with FMV to project ordinary income and AMT separately.
- Tax equity lumps at your marginal rate, not your salary effective rate.
- Compare projected tax to withholding early enough to fix gaps in the same year.
- Revisit the estimate after each major equity event or stock price swing.
This guide is for general education only and is not tax, legal, or accounting advice. Rules change, and your facts matter. Talk to a qualified professional before filing or making equity decisions.
Related guides
How Are RSUs Taxed When They Vest?
RSUs are taxed as ordinary income the moment they vest, based on fair market value that day. Here's what shows up on your W-2, how withholding works, and what happens when you sell.
RSU Tax Withholding Not Enough: What to Do
When your employer withholds 22% on RSU vests but you're in the 32% bracket, you'll owe more at tax time. Here's how to calculate the gap and fix it before penalties hit.
AMT from Incentive Stock Options
Exercising ISOs can trigger alternative minimum tax even when you sell no shares. Learn how the spread hits Form 6251, how much AMT you might owe, and how the AMT credit works.