Collecting FICA Taxes Near Retirement The process of collecting taxes on RSUs vesting close to retirement presents unique logistical challenges: Limited Payroll for Withholding: Employees nearing retirement may have reduced or irregular income, limiting the employer’s ability to collect the required taxes through standard payroll deductions. Employers may need to withhold from other forms of compensation or require the employee to make direct payments. Potential for Lump-Sum Payments: Employees who retire shortly after their RSUs vest may receive lump-sum payouts or distributions, complicating the employer’s withholding obligations. Ensuring that all applicable taxes are withheld correctly in such scenarios requires careful coordination. Traditional payroll software solutions do not accommodate these scenarios, so the burden of calculations and evaluation often falls on the payroll professional.
Double Taxation Risk: For employees nearing
retirement, there is a risk of perceived double taxation if they do not fully understand the distinction between the taxation at vesting and the capital gains taxation when the shares are eventually sold. While taxes are due at vesting, any subsequent appreciation in the value of the shares will be subject to U.S. capital gains tax when sold, creating additional tax obligations. Tax Reporting Complexity: Ensuring accurate tax reporting for RSUs is critical, including proper documentation of income recognition and tax withholdings on the W-2, as well as timely and accurate quarterly regulatory filings. Errors in reporting could lead to compliance issues, penalties, or audits, which may disproportionately impact retiring employees who are planning their financial transitions. Given the complexity of their tax liabilities, employers should take additional steps to prevent misreporting that could create unexpected tax burdens or filing complications for these employees.
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ISSUE 9 GLOBAL PAYROLL MAGAZINE
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