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I'm about to receive some restricted stock through my employer. These are stock units, not stock options, so I can't defer their vesting. When they vest, my broker is requiring that I wire them cash to cover my expected tax liability or they will forcibly sell about 1/3 of my shares to cover the taxes.

Why am I paying the broker directly? I don't understand why I'm unable to simply declare these RSUs in a quarterly tax payment to the IRS directly. I'm suspecting it's a 100% greedy motivation for them to hold my cash for a bit before passing it on.

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Your employer is required to withhold taxes just as if it were a bonus check, since the RSU is compensation to you. Presumably, the broker obtains that for them by either getting cash from you or selling enough shares to cover the withholding.

Every RSU I've ever received had shares sold (also about 1/3) to cover the tax withholding. I've never heard of an option to pay the tax yourself. That part does seem odd, but perhaps it's just an option the broker offers to give you an option (you're effectively "buying" the shares that would have been sold to cover the tax).

I don't understand why I'm unable to simply declare these RSUs in a quarterly tax payment to the IRS directly.

It's essentially the same as a bonus check. You don't have (at least I never have had) an option to receive your bonus in full and file an quarterly estimated tax payment for that.

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    I'd guess that this is an IRS requirement because a portion of the population would tell their broker "Nah, don't bother with withholding, I'll take care of it in my quarterly estimated tax payment>" and then never make the payment. From the point of view of the IRS its much simpler and reliable to force the withholding at the time of transfer. – Charles E. Grant Nov 30 '18 at 21:06
  • Perhaps in some sense if you were self-employed and you (somehow?) got some of these, you would then (as with any self-employed income) be in charge yourself of withholding the tax?? – Fattie Dec 1 '18 at 5:12
  • Thank you for the perspective. I've been considering the RSUs as capital gains since my broker is withholding, not my employer. My regular broker doesn't withhold from trade profits and I expected the same concept to apply here. When I think about this as employment income, I understand the withholding. They aren't applying the exemptions or using withholding tables as I would expect (they are withholding a flat 32%) so it seemed a bit incongruent to me. I'm actually a fan of being able to pay cash for the RSU since they are down following the recent market downturn and I consider this a deal. – Brian R Dec 1 '18 at 21:23
  • @BrianR yes it is income not capital gains. The reason the withholding is different is because irregular income like bonuses is withheld at a flat rate since there's no way to extrapolate to a full year like regular income. – D Stanley Dec 1 '18 at 23:34
  • Withholding on bonuses doesn’t follow withholding tables; it uses a flat rate, 22% in 2018 + 7.65 FICA (+ state tax, if any). – prl Dec 2 '18 at 0:18

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