2022 Tax Planning Best Practices for Tech Employees

Do you receive some sort of equity in the form of compensation? Are the rules frustrating, confusing, and overwhelming come tax time? 

If you answered yes to either of these questions, you’re in good company.

In this blog post, we’ll review tax strategies for tech employees who have some kind of stock options or other non-standard compensation. 

Understanding the tax ramifications of different forms of compensation is critical for tech employees. If you don’t keep your various tax requirements in mind when making decisions about your options or other equity compensation, you could get hit with a hefty tax bill. 

What Type of Compensation Typically Gets Tech Employees in Hot Water? 

A standard paycheck usually won’t get you tangled up in a tax mess. That’s because your employer is required to withhold a portion of your W-2 compensation for taxes, so it’s relatively straightforward.

It’s your non-standard compensation, like RSUs, ESPPS, ISOs, etc., and that’s especially true for tech employees because equity often makes up a pretty significant chunk of your total compensation. But, your compensation in the form of equity doesn’t have to be a tax nightmare. 

The key with non-standard compensation is to be proactive—know what you have, what you plan to do with it, and how your choices impact your tax bill. Then, plan accordingly.

How Can Tech Employees Get Proactive with Tax Planning? 

First, you need to be aware of the type of equity you have and when it triggers a tax liability. That primary step alerts you to when you will encounter a taxable event.

You also need to know when your company will grant you more stock options, and your employer should have made this clear in your hiring offer. If you don’t remember or can’t find your documents, just ask. 

Each type of stock option or equity has a different set of tax rules. Some, like RSUs or RSAs, are taxable when they vest or you meet the restriction requirements, and others, like ISOs, are taxable when you sell the shares. 

You need to know your specific situation to have a plan in place ahead of time!