When Google RSUs are taxed
Your GSUs are taxed when they vest. The value of the shares on that day counts as wages, whether you sell them or keep them.
That value also becomes your cost basis. For example, if 100 shares vest at $200, you have $20,000 of wage income and a basis of $200 per share. When you later sell, you’re only taxed on how much the price has changed since the vest. Holding for more than a year lowers the rate on that change, but it doesn’t reduce the tax on the vest itself. RSU taxes when you sell has examples.
Why you can still owe tax after shares were withheld
Withholding is only an estimate of your tax, and Google’s default federal rate of 22% is often lower than your actual bracket.
Google keeps some of your shares to pay the withholding, so you receive fewer shares than vested. Here’s a 100-share vest with federal withholding included:
100 GSUs vest
At $200 per share, that’s $20,000 of wage income.
22 shares withheld
At the default 22% federal rate, Google keeps 22 shares, worth $4,400.
78 shares left
State and payroll taxes will reduce this further. Each share you receive has a basis of $200.
Federal income tax only. The rate is 37% on supplemental wages above $1 million in a year. Your paystub shows the actual amounts.
If that $20,000 lands in the 35% bracket, you owe $7,000 of federal tax on it but only $4,400 was withheld, which leaves you $2,600 short. That shortfall repeats with every vest, so it adds up. On $150,000 of GSUs in a year, it comes to $19,500. Your actual number depends on the rest of your income and deductions.
You can fix this by raising the federal withholding rate on your GSUs, which is what I’d do because it’s automatic once it’s set, or by making quarterly estimated payments. Before a large vest, it’s worth giving your tax preparer a recent paystub, what you expect to earn for the rest of the year, and last year’s return so they can estimate the gap.
Other things to know at Google
- Dividend equivalents
- On unvested GSUs, these are paid as extra units that vest with the grant. They’re taxed as wages when they vest, the same as the GSUs themselves, and they aren’t reported as dividends.
- Your cost basis
- The 1099-B you get after selling GSU shares often shows a cost basis that’s too low, which would mean paying tax twice on the same income. RSU taxes when you sell shows how to correct it.
- Moving states
- If you move out of California, the state still taxes part of the GSUs that vest afterward, based on where you worked between the grant and the vest. How RSUs are taxed when you move states has an example.
