If you are a Google employee, you’ve probably started paying closer attention to your tax situation over the last few years, especially around tax filing season. 

Rising stock prices have pushed total compensation higher. Many employees are surprised to see the total amount of income reported (and total taxes withheld) on their W-2. Google stock has performed exceptionally well, and that is definitely worth celebrating. 

However, higher GSU income stacks on top of base pay and bonuses. As total compensation grows, default tax withholding levels are often insufficient. This leads to unexpected tax bills, even when shares were withheld at vest. Taxes start to feel less predictable and more frustrating. 

Taxes also stop being a background detail and start influencing real decisions about when to sell stock, how much risk to carry, and how to manage ongoing cash flow.

This article focuses on the two tax dynamics that most often catch Google employees off guard: underwithholding on GSUs and the tendency for taxes to drive selling decisions.

Tax Trap #1: GSU Underwithholding

One of the biggest tax surprises for Google employees comes from the difference between how GSU income is taxed and how tax withholding is applied to that income.

When RSUs vest or bonuses are paid, taxes are withheld using a standard supplemental rate formula. Employers are required to withhold: 

• 22% for federal income taxes on the first $1 million in GSU income
• 37% for federal income taxes on GSU income exceeding $1 million

The federal tax system is progressive, which means each additional dollar you earn is taxed at higher rates as your income increases. Your final tax bill is calculated by applying the tax brackets to all of your ordinary income combined.

Below are the federal income tax brackets for 2026. These brackets take into account all of your ordinary income sources including: salary, bonus, GSU income, investment interest earned. 

This is where the mismatch shows up. 

Your total combined ordinary income (salary + bonus + GSU income + other) may place a significant portion of your earnings well above the 22% tax bracket. However, withholding on GSUs is still applied at 22% for the first $1 million of GSUs. The difference between what is withheld and what is owed shows up later as a balance due when you file your tax return. 

As equity income becomes a larger part of your compensation, your marginal tax rate often rises, widening the gap between what is withheld and what is ultimately owed. Rising stock prices can amplify the issue by increasing the taxable value of vesting shares throughout the year. 

When that gap shows up at filing time, it can force uncomfortable decisions. You may need to sell additional GSUs (potentially realizing capital gains) or draw from cash reserves that were intended for other goals.

A common solution is making estimated quarterly tax payments. Another approach is increasing ongoing tax withholdings by updating your W-4.  

Determining the proper approach and tax gap amount requires a forward-looking tax projection. That projection estimates total income for the year including: salary, expected GSU vesting value, bonuses, investment income, and any other income sources. The total estimated tax liability is compared against withholdings to determine the tax gap.

Mistake #2: Selling Decisions Driven by Taxes

For many Google employees, taxes become the primary reason not to sell GSUs.

This is understandable. The capital gains tax impact can feel painful, especially following strong performance. It’s easy to postpone selling to a future date. After several vesting cycles and continuing stock appreciation, many employees step back and realize that GOOG now represents a large portion of their overall portfolio. 

There’s a common saying in the financial planning world: “Don’t let the tax tail wag the investment dog.”   

Tax efficiency is important. However, risk management is the top priority. 

Holding a large position in a single stock carries risk, particularly when that same company is also signing your paycheck.

Stock prices can decline for many reasons, some of which are beyond the company’s control. These include: changing economic conditions, changing investor expectations, increased competition, or rapid technology changes.

Paying capital gains taxes is never fun. At the same time, it’s worth considering that a relatively modest decline in the stock price can erase more value than the taxes you would have paid by selling earlier. 

Let’s look at an example: 

You own $100,000 of GOOG with a cost basis (i.e. purchase value) of $40,000. This means you have a $60,000 unrealized gain.  

If you sold the stock and paid the top federal capital long-term gains tax rate of 23.8%, the tax owed would be about $14,300 ($60,000 gain x 23.8%). 

Now consider a different outcome:    

Instead of selling, you keep your shares, and the stock declines 17% from $100,000 to $83,000. This $17,000 decline exceeds the capital gains tax you would have paid by selling earlier. 

This doesn’t mean selling guarantees better results, or that stock prices can’t recover. It simply highlights a common tradeoff: a known tax cost versus potential value lost during a stock price decline. 

The goal is to balance tax efficiency with prudent risk management. Finding that balance (and revisiting it as compensation and net worth grow) is one of the most important aspects of long term financial planning.

Conclusion

For many Google employees, managing taxes has become increasingly challenging as equity compensation grows and interacts with the tax system over time.

Underwithholding on GSUs is not an error. It’s a structural mismatch between flat withholding rates and progressive tax brackets. Also, realizing capital gains on appreciated stock can feel uncomfortable, even when selling is the prudent choice from a risk management perspective.

The goal is to recognize these two dynamics early and plan for them intentionally. When withholding, tax payments, and the impact of selling decisions are all coordinated, taxes become much more predictable and manageable.

If you would like help thinking through how these pieces fit together in your own situation, we are happy to be a resource. Please reach out to us using the Contact Us page here.