CPA Services for Tech Employees with Equity Compensation

Who This Is For

Tech employees at public companies with vesting RSUs, pre-IPO startup employees with stock options, holders of Incentive Stock Options (ISOs) facing AMT, and participants in Employee Stock Purchase Plans (ESPPs) with disqualifying or qualifying dispositions.

Top Tax Issues for Tech Employees & Equity Comp

• Under-withholding on RSU vesting

  Employers commonly withhold a flat 22% federal supplemental rate on RSU income, which is below the marginal rate for many tech employees in the 32-37% brackets. Quarterly estimates or additional W-4 withholding closes the gap.

• Alternative Minimum Tax (AMT) on ISO exercises

  Exercising and holding Incentive Stock Options creates an AMT preference equal to the bargain element. Large ISO exercises can trigger six-figure AMT bills with no actual cash from the shares: a common reason for AMT planning before exercise.

• Multi-state allocation of equity compensation

  Equity that vests after relocating triggers multi-state allocation under each state's sourcing rules. California claws back its share of equity earned during California residency, even after a move.

• ESPP disqualifying disposition complications

  ESPP shares sold before holding the required period (1 year after purchase + 2 years after offering start) trigger ordinary income on the discount, then capital gain on the rest. The ordinary portion appears on the W-2 but is often not basis-adjusted on the broker 1099-B.

Strategies TS CPA Uses

• Sell-to-cover and additional withholding

  For RSUs, additional W-4 withholding (line 4(c) extra withholding) or estimated payments on Form 1040-ES prevent underpayment penalties when the 22% supplemental rate is too low.

• AMT planning around ISO exercises

  Modeling the AMT impact before exercise: including current-year AMT credit generation, future-year regular tax, and AMT credit utilization: often reveals optimal partial exercise strategies. Same-day-sale exercises avoid AMT but lose long-term capital gain treatment.

• QSBS Section 1202 exclusion for early-stage equity

  Qualified Small Business Stock held more than five years can exclude up to $10M (or 10x basis) from federal capital gains. Early-stage employees and founders should track issuance dates, holding periods, and qualified small business eligibility.

• Tax-loss harvesting in down markets

  Capital losses on diversified holdings offset RSU-driven capital gains and up to $3,000 of ordinary income annually. Wash sale rules apply to public stocks; coordinated harvesting across taxable, IRA, and 401(k) accounts is essential.