Top 4 Ways to Reduce Taxes on RSU Income
RSU income for tech employees tends to be a large part, if not the biggest part, of their total annual income. This may put stress on monthly cash flow when it comes to maxing out employer benefits such as pre-tax and after-tax 401(k), ESPP, HSAs, etc. This stress can often be compounded come April the following year, only to find out you have to pay a hefty tax bill.
Below are our top 4 recommendations for managing your tax bill due to RSU income.
1. Adjust Your Tax Withholding
The US uses a progressive tax system, so it’s important to be aware of the difference between what your highest marginal income tax rate is and what your effective tax rate is. Marginal is the rate you pay on the next dollar of earned income, whereas the effective tax rate is the average rate you pay on every dollar of income.
Example: A single filer who earns $150k of income has a marginal tax rate of 24% but an effective tax rate of 18.01%. Below are some examples to help you gauge how adjusting your withholding can help you plan for next year’s tax season.
Here’s what you can expect for the 2026 Tax Year:
2026 Projected Tax Rates: Single
| Gross Income | Marginal Rate | Effective Rate |
|---|---|---|
| $150,000 | 24% | 16.49% |
| $300,000 | 35% | 22.71% |
| $450,000 | 35% | 26.81% |
| $600,000 | 35% | 28.86% |
| $750,000 | 37% | 30.33% |
| $1,000,000 | 37% | 32.00% |
2026 Projected Tax Rates: Married Filing Jointly
| Gross Income | Marginal Rate | Effective Rate |
|---|---|---|
| $150,000 | 22% | 10.23% |
| $300,000 | 24% | 16.49% |
| $450,000 | 32% | 19.25% |
| $600,000 | 35% | 22.71% |
| $750,000 | 35% | 25.17% |
| $1,000,000 | 37% | 28.02% |
*The above figures are just estimates; effective rates vary given your unique deductions. Please consult your tax advisor.
The default Federal tax withholding rate for many tech firms is 22%. Given where your income falls on the chart above, you may want to adjust your sell-to-cover election, if your company allows. Many companies allow for this, but some don’t. If you’re unsure, reach out to your HR department or stock plan department to ask.
When you increase your tax withholding, the payroll department will simply sell more shares at each vesting period, withhold that cash for your federal tax payment, and report a higher amount of withholding on your W-2.
Withholding more of your RSU income will also reduce the amount of interest and penalties the IRS charges for underpayment of taxes
2. Sell Stock Right Away
One of the most common misconceptions we hear from clients is that if they sell their stock as soon as they receive it, they will pay short-term capital gains taxes. In reality, this can be the most tax-efficient time to sell your RSUs.
On the day that your shares vest, the shares you receive are treated as ordinary income. Your employer will sell some shares to cover your federal tax withholding (aka “sell-to-cover”) and will deposit the remaining shares into your account.
The price of the stock on the day that it vests is now the cost basis for those shares. If you immediately sell the shares, the stock has not yet increased in value (or decreased), thus there is no gain to pay capital gains taxes on.
3. Maximize Your Tax Deductions
With the constantly changing prices of tech stocks, it can be hard to control or predict income. You can, however, take charge of your tax situation by maximizing all deductions available to you. Here are a few ideas to consider when planning out your tax situation throughout the year.
Max out Tax-Deductible Accounts
Pre-tax 401(k) - For the tax year 2026, you are eligible to contribute up to $24,500 into your pre-tax 401(k), which directly reduces your taxable income. If both spouses are offered a 401(k), that’s a total of $49k in income tax deductions for the tax year 2026.
Health Savings Accounts (HSA) - If you have a high-deductible health insurance plan, you can max out your Health Savings Account (HSA). HSA contributions are made pre-tax, which helps reduce your taxable income. The HSA is one of the most tax-advantageous accounts available. Contributions are made pre-tax, growth is tax-deferred, and distributions are tax-free if they’re for medical expenses. For the 2026 tax year, individuals can contribute up to $4,400, and families $8,750. For those age 55+, you can make an additional catch-up contribution of $1,000.
Harvest Losses First
If you opt to sell shares, be sure to calculate which shares are going to be the most beneficial to your bottom line. It can be better to sell stock at a loss (aka “tax-loss harvesting”) vs. selling highly appreciated stock that comes with a huge tax bill.
Example – Let’s say you had GOOG RSUs vest at $300/share and it’s currently trading at $275/share. You can use the $25 loss to write off gains you may have in other taxable investments. If you have more losses than you do gains, you can also write off up to $3,000 in losses against your earned income. And if your losses exceed gains and the $3,000 income deduction, you can carryforward unused losses into unlimited future tax years.
Tax-loss harvesting is such a great benefit that our investment operations team is constantly looking for losses to harvest for clients. We believe that you can turn an investment loser into a tax winner.
Tax Bunching
Under the Tax Cuts & Jobs Act (TCJA), many itemized deductions were restricted or eliminated. As a result, roughly 11% of the US population itemized their taxes in 2018, compared to 31% in 2017.
While the TCJA was scheduled to sunset in 2025, the passage of the One Big Beautiful Bill Act (OBBBA) made many of these provisions permanent or enhanced them. Most notably for high-income earners, OBBBA raised the State & Local Tax (SALT) cap, which may make it much easier for you to itemize your deductions in 2026 than in previous years.
One helpful strategy is Tax Bunching, wherein you alternate years between taking the standard deduction and itemizing by planning deductible expenses in the year you itemize. If you are scheduled to have a high-income tax year (like a vesting cliff or liquidity event), it is often beneficial to "bunch" deductions into that year.
Here are the primary deductions you should review for 2026:
Mortgage Interest – The OBBBA made the TCJA limit permanent. You may deduct interest on up to $750,000 of mortgage debt (this did not revert to the old $1M limit).
Property & State Taxes (SALT) – This is a major change for 2026. The previous $10,000 cap has been raised to $40,000. This means you can deduct up to $40k of your combined state income taxes and property taxes. Because this limit is higher, you’re far more likely to exceed the standard deduction, making "bunching" property tax payments (paying 2026 taxes in Jan 2026 and 2027 taxes in Dec 2026) a powerful strategy again.
Charitable Contributions – You can deduct up to 60% of AGI, and donations with capital gains to 30% of AGI if contributions are made to qualified organizations. We have outlined a number of these strategies below. Note that for 2026, there is a new "floor" on donations for itemizers: you can generally only deduct contributions that exceed 0.5% of your AGI. However, if you do not itemize, you can now claim a standalone deduction of up to $2,000 (married) or $1,000 (single).
Medical & Health Expenses – You may deduct medical expenses that exceed 7.5% of your AGI. This would be for planned major expenses such as surgeries, braces, etc.
4. Make Charitable Contributions
Many clients opt to support the organizations, places of worship, schools, etc., that are closest to their hearts. All too often, we see clients writing checks or donating cash, not knowing that their money could be going so much further with the causes they support. After learning about the next two strategies, many of our clients have vowed to never donate cash again.
Donate Low Basis Shares - Not Cash
That’s right. You can gift shares directly to the non-profit organization of your choice and receive a tax deduction for the fair market value (FMV) of the shares. Provided the non-profit is a 501(c)(3) organization, it does not have to pay any taxes when it sells the stock that you have donated. As a result, it is often most advantageous for clients to donate the shares with the lowest cost basis, which helps to increase the average cost basis (and reduces the tax liability) on the remaining shares they own.
For example, let’s say you want to donate to United Way and have twenty shares of AMZN stock to fund the donation. The stock is currently priced at $150 per share, and your cost basis is $50. If you sold the stock and donated the cash, you would have to pay taxes on the $100 capital gain per share. Assuming a 15% long-term capital gains tax rate, you would have to pay $300 in capital gains taxes, which reduces your donation to $2,700. If you donate the stock directly to United Way, they don’t pay any capital gains tax as a 501(c)(3) and you receive a tax deduction for the full $3,000 FMV. Win-win.
Donor-Advised Fund (DAF)
Many of our clients like to make small, consistent annual donations to their preferred organizations - $500, $1k, $5k, $10k, etc. It may not make a huge difference to your tax bill to donate $1k every year, especially if you are scheduled to have a very high taxable income one year, or if you don’t itemize deductions on your return.
But what if you could make a large $50k donation this year, take the deduction, and still gift out $5k/year over the next 10 years? A donor-advised fund is the account that allows you to do it.
Let’s say you have a concentrated MSFT stock position and a year with unexpectedly high income due to a home sale, special stock award, or a large stock sale. A year like that could justify taking additional tax deductions to reduce your bill. The DAF is an account that is registered as a non-profit organization.
When you transfer shares directly into the account, you receive a deduction for the donation. Just keep in mind that for most charities, the IRS limits cash donations to 60% of AGI, and donations with capital gains to 30% of AGI.
Although the DAF provider controls the money in the fund, you get to recommend which investments to use. You are then able to make distributions from the account to any other non-profit organization, over any time period of your choosing. Some clients want to see their investments grow to a certain point before finalizing a distribution, and others need more time to research the non-profit of their choosing, but also want to realize a tax benefit in a specific year. Many providers will have a minimum annual distribution amount that is required.
Ready to Optimize Your Tax Plan?
It’s important to work with a financial planning firm that specializes in your unique compensation structure. It makes your life easy so you don’t have to explain all the intricacies of your company's benefits! Also, make sure that the firm you’re working with is a fiduciary, and make sure your advisor or advisory team consists of CERTIFIED FINANCIAL PLANNER® professionals.
That’s why you should consider working with Consilio Wealth Advisors while creating a plan for your Amazon RSUs. Consilio specializes in working with tech professionals at companies like Amazon, Microsoft, Google, and Meta, and we make a point of communicating clearly and simply (without the jargon) with our clients. If you’re looking for financial professionals who see the people they work with as people, set up a free intro call.
DISCLOSURES:
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
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Consilio Wealth Advisors, LLC (“CWA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.
