RSUs, ISOs, and concentration: equity comp planning in Austin

When RSUs vest, the full value is ordinary income. Most employers withhold at the 22% federal supplemental rate. If your marginal rate is 32% or 35%, that gap is real money, and it compounds silently across a year of quarterly vests until it appears as an unexpected balance due.

The fix is unglamorous: project the shortfall, and cover it with estimated payments or additional withholding rather than discovering it in April.

Incentive stock options do not generate ordinary income at exercise, which is the appeal. But the spread between strike and fair market value is an adjustment for alternative minimum tax, which means you can owe tax on a paper gain in a company whose stock you have not sold and may not be able to sell.

This is the failure mode that damaged a lot of people in past cycles: exercise late in the year, value falls before you can sell, AMT bill arrives anyway. Exercising in tranches and modeling the AMT crossover point before you act is the whole game.

Equity compensation ties your salary, your bonus, and a growing share of your net worth to one company. That is fine while it works. It is the single most common reason a strong financial position becomes a fragile one.

Systematic selling — a written rule about what percentage you keep and what vests get sold immediately — takes the decision out of the moment. A 10b5-1 plan does the same thing where trading windows apply.

Selling RSUs the moment they vest has no tax cost, because you were already taxed at full value at vest. Your basis is the vest-day price, so an immediate sale produces essentially zero gain.

Which reframes the question. Holding is not the neutral choice — it is an active decision to buy more of your employer's stock with after-tax money. Sometimes that is right. It should be a decision rather than a default.