My fidelity account shows that I’ll be taxed at 40.9% when my RSU vest? Does this make sense? I thought these should be taxed at our normal income tax. Can someone please help me understand?
TC: 290k
#tax
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This comment was deleted by original commenter.
So let's say you make $150k base plus get $100k in RSUs and the tax rates are 0% for the first $25k, 10% for the next $50k, 25% for the next $75k, and 40% for everything above that. Your base salary will have an effective tax rate of 15.8% (($0+$5k+18.75k)/$150k) while the RSUs will be taxed at 40%.
If your base income went up to, say, $200k, that extra $50k would be taxed at 40% as well, but your effective tax rate on your base would be 21.9% (($0k+$5k+$18.75k+$20k)/$200k). The RSUs would still be taxed at 40%.
My example was pretty simplistic. While in reality your actual effective tax rate is smeared across the year (if it wasn't you'd have huge paychecks in January and small ones in December), things like payroll tax are paid as you go up to the payroll tax limit and then your paychecks get larger.