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As a retention incentive, I was granted stock (about $60,000) in my employers privately owned company.

The stock grant went through payroll in December and had FICA taken out but no income tax. I anticipate a huge tax bill when I file ($20,000+).

Is the IRS going to clobber me for this? Will I have penalties for not paying quarterly taxes or be forced to pay quarterly taxes this year even though this was a one-time thing? Should I do anything now or handle it all when I file?

Someone asked "Can you confirm this is outright stock grant and not the more commonly granted options?". I'm not sure what the difference is. I was given 200 shares of restricted stock. The value of those shares shows up on my paystub and W2 as income paid to me. From the outside, it looks like my company paid me a $60,000 bonus and then I gave it back to them for 200 shares.

Mod note - this question was merged from this one as the OP lost access to the account that posted it and wanted to make changes.

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  • First, congrats... ;-) – keshlam Jan 23 '16 at 4:14
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    Can you confirm this is outright stock grant and not the more commonly granted options? – davmp Jan 23 '16 at 19:11
  • Restricted stock normally comes with a "vesting date" or a vesting schedule (series of dates on which a certain number of shares vest). You aren't allowed to sell the stock until the vesting date. AFAIK, you aren't taxed for receiving the shares until they vest (that is, until you have enough control over them to be able to sell them). – The Photon Jan 24 '16 at 19:10
  • @The Photon You are exactly right. I signed paperwork 2 years ago, and the stock was cliff vested (I got nothing if I left before the 2 years was up). I'm now 100% vested, and the value of the stock was on my last paystub of the year as income, with money taken out for FICA but not income tax. – DreamsCrumbleInc Jan 24 '16 at 23:30
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I went through this too. There's a safe-harbor provision. If you prepay as estimated tax payments, 110% of your previous year's tax liability, there's no penalty for underpayment of the big liquidity-event tax liability. https://www.irs.gov/publications/p17/ch04.html

That's with the feds.

Your state may have different rules.

You would be very wise indeed to hire an accountant to prepare your return this year. If I were you I'd ask your company's CFO or finance chief to suggest somebody.

Congratulations, by the way.

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  • Thanks! Nice to hear from someone who has went through it before. And I just did the math. My withholding is 112% of last year's tax liability. I am definitely having an accountant do my tax prep. I met with him in the fall and he seemed unconcerned about this but the more I read, the more I got worried. Thanks again! – DreamsCrumbleInc Jan 30 '16 at 2:22
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If you have a one-time event, you are allowed to make a single estimated payment for that quarter on Form 1040-ES. People seem to fear that if they make one such payment they will need to do it forevermore, and that is not true. The IRS instructions do kind of read that way, but that's because most people who make estimated payment do so because of some repeating circumstance like being self-employed.

In addition, you may qualify for one or more waivers on a potential underpayment penalty when you file your Form 1040 even if you don't make an estimated payment, and you may reduce or eliminate any penalty by annualizing your income - which is to say breaking it down by quarter rather than the full year. Check on the instructions for Form 2210 for more detail, including Schedule AI for annualizing income. This is some work, but it might be worthwhile depending on your situation.

https://www.irs.gov/instructions/i2210/ch02.html

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  • Great answer. Thanks for the help. You'll get some upvote love once I get enough rep to do it :) – DreamsCrumbleInc Jan 30 '16 at 2:23

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