Intel RSU Taxation

Is it just me, or are taxes obscenely high?

Kyle,

"...Because the RSUs are considered ordinary income, they also withhold 7.65% for FICA. In Oregon bonuses are subject to 9% withholding (which is also the actual tax rate for nearly everyone). So the total withholding in Oregon is 25% + 7.65% + 9% = 41.65%. The company will withhold an integer number of shares, always rounding up...."

I assume that the company itself also has to pay an additional 7.65% for FICA, which is economically effectively paid by you as well.

It's truly amazing how the economic ignorance of both the accounting profession and mainstream economists cascades injury onto insult and butchers shareholders by expensing both employee share and option grants without economic justification.

Regards, Don

Kyle,

"...Taxes are due upon vesting (not upon grant or sale) and the company will automatically withhold a portion of the shares to cover the taxes. The withholding appears to be at the standard federal rate for bonuses, 25%, rather than being adjusted by income and exemptions and that sort of thing...."

Just what exactly can it mean to withhold a portion of the shares? What happens to the withheld shares? If you don't get them, and they are not transferred to the governments, they must be retained by the company. But a company retaining its own shares has no economic meaning, and these shares have no impact on the ownership structure of the company. There is less here than meets the eye, but it's too mindboggling to easily analyze. I would be surprised if a true analysis doesn't result in some shocking unintended consequence.

Regards, Don

Don,

As it was explained to me, the shares are sold on the open market and the proceeds sent to the taxman.

If I was granted 100 RSUs, at maturity 58 shares are placed in my account and the remaining 42 shares immediately sold to cover the taxes. (And you're right that the employer share of FICA has to be paid, too.)

Kyle,

Am I correct in assuming that you will still owe extra tax even if you sell the stock at vesting if your marginal rate exceeds 25%?

There is still the question of tax basis if you hold stock and whether selling stock at vesting is necessarily a sale on the open market as opposed to a sale to Intel.

Regards, Don

Don,

Yes, and mine is, so I will. :(

The tax basis is share price on the day of vesting. Everything from $0 to that price is treated as income, and everything after that is capital gains (or losses).

I don't know how the accounting for the withheld shares is actually done. It's possible that the withheld shares never exist at all, and Intel simply pays the taxes with its own cash.