How the numbers are computed
Every rule the engine applies, with the section of the Code or IRS publication it comes from. Tax tables are data, not code, and each carries its own verification status.
Rule 1
RSU settlement is ordinary wage income
Shares are taxed at their fair market value on the settlement date as wages, subject to income tax, Social Security (up to the wage base), Medicare, and Additional Medicare.
IRC Section 83(a); IRS Pub 525
Rule 2
Supplemental withholding is a flat 22%, then 37% above $1M
Employers withhold at the flat supplemental rate regardless of your actual bracket, which is the source of the withholding gap. The two rates work in steps: 22% on the first $1M of supplemental pay in the year and 37% only on the dollars above it, so a $1.1M payout is withheld at 22% on $1M and 37% on $100,000. If your real rate is above the withholding rate you owe the difference; below it, you get money back.
IRS Pub 15, Section 7
Rule 3
Social Security stops at the wage base; Medicare doesn't
6.2% Social Security applies up to the yearly wage base across all wages. 1.45% Medicare applies to all wages, plus 0.9% Additional Medicare above $200,000 ($250,000 married filing jointly).
IRC Section 3101; Section 3102(f)
Rule 4
NSO exercise creates ordinary income equal to the spread
FMV at exercise minus strike is wage income; your basis becomes the FMV at exercise.
IRC Section 83; Treas. Reg. Section 1.83-7
Rule 5
ISO exercise is an AMT preference, not regular income
The spread is added to alternative minimum taxable income. A qualifying disposition requires holding two years from grant and one year from exercise.
IRC Section 421, Section 422, Section 56(b)(3)
Rule 6
A disqualifying ISO sale turns the spread into ordinary income
Selling before both holding periods are met makes the lesser of the exercise spread or the actual gain ordinary income, with no income tax or payroll tax withheld.
IRC Section 421(b); Section 422(c)(2)
Rule 7
Only $100,000 of ISOs can first vest each year
Measured at grant-date value. Options above the limit are treated as NSOs, in the order they were granted.
IRC Section 422(d)
Rule 8
AMT uses its own exemption, phaseout, and two rates
The exemption is reduced by 25 cents per dollar of AMT income above the phaseout threshold. Tentative minimum tax is 26% up to the bracket line and 28% above it. You pay the higher of regular tax or tentative minimum tax.
IRC Section 55
Rule 9
AMT from ISOs becomes a credit later
AMT caused by timing items like ISO exercises carries forward as a credit against regular tax in future years when regular tax exceeds tentative minimum tax.
IRC Section 53; Form 8801
Rule 10
An 83(b) election taxes unvested shares when bought
Filing within 30 days makes the spread at purchase taxable now (often $0) and starts the capital gains holding period. Without it, each vesting date creates ordinary income.
IRC Section 83(b); Treas. Reg. Section 1.83-2
Rule 11
ESPP gains depend on how long you hold
A qualifying sale (2 years from offering, 1 year from purchase) makes the lesser of the actual gain or the offering-date discount ordinary income. A disqualifying sale makes the full purchase-date discount ordinary income.
IRC Section 423; Treas. Reg. Section 1.423-2
Rule 12
Capital gains are netted short-term first, then long-term, then against each other
Net losses offset up to $3,000 of ordinary income ($1,500 MFS); the remainder carries forward with its character.
IRC Section 1211, Section 1212, Section 1222
Rule 13
Long-term gains stack on top of ordinary income
The 0% / 15% / 20% bands are applied to the portion of gain that falls in each band after ordinary taxable income.
IRC Section 1(h)
Rule 14
Net investment income tax applies to gains, not wages
3.8% on the lesser of net investment income or MAGI above the threshold.
IRC Section 1411
Rule 15
QSBS can exclude most or all of the gain
Qualified small business stock held long enough excludes gain up to the per-issuer cap. Stock issued after July 4, 2025 qualifies in tiers: 50% at 3 years, 75% at 4 years, and 100% at 5 years. Some states, including California, don't follow the exclusion.
IRC Section 1202
Rule 16
Acquisition cash is taxed now; stock may wait
In a mixed cash-and-stock deal that qualifies as a reorganization, gain is taxed up to the cash received. The rest is deferred until you sell the buyer's stock.
IRC Section 354, Section 356, Section 368
Rule 17
State tax on equity follows workday sourcing
States like California and New York tax RSU and option income by the share of workdays spent in the state between grant and vest (grant and exercise for California options). Workdays exclude weekends, the 10 common paid holidays, and days worked in other states. The state you left taxes its share as a nonresident: its tax on your full income times its share of that income. Capital gains after settlement follow residence at sale.
Cal. Code Regs. tit. 18 Section 17951-5; N.Y. Comp. Codes R. & Regs. tit. 20 Section 132.18
Rule 18
City income taxes stack on state tax
Residents of New York City and other taxing localities pay city tax on the same income, using the city's own brackets.
NYC Admin. Code Section 11-1701
Rule 19
Safe harbor avoids the underpayment penalty
Paying 90% of this year's tax, or 100% of last year's (110% if last year's AGI was over $150,000), through withholding and quarterly estimates avoids the penalty. Withholding counts as paid evenly through the year.
IRC Section 6654(d); IRS Pub 505
Rule 20
The underpayment penalty is interest on each late installment
Charged at the IRS underpayment rate from each installment's due date until paid or April 15, whichever comes first.
IRC Section 6621, Section 6654