Executive Summary
Do I pay Social Security tax on RSU vesting?
Generally yes—RSU income treated as wages is subject to FICA like salary until you exceed the Social Security wage base for the year. Above that base, Social Security tax typically stops, but Medicare continues.
Why did Medicare tax spike on my big vest?
There is no Social Security wage cap continuation, so Medicare applies to all covered wages. Additional Medicare tax may apply once combined wages exceed threshold—often visible in late-year large vests.
Are ISO exercises subject to FICA?
ISO exercises generally are not taxed as wages for income tax at exercise; payroll tax treatment differs from NSO spread which is commonly wages for FICA. However, disqualifying dispositions and other events can change reporting—confirm Forms W-2 and 3921.
Employees often anchor on income tax brackets and forget payroll taxes on equity that flows through payroll. This guide frames how payroll taxes attach—not employer-specific payroll policies.
Related: NSO exercise estimator, RSU withholding.
What Is “Wages” for FICA?
| Typical equity event | Often treated as wages for FICA? |
|---|---|
| RSU vest / settlement | Yes (ordinary wages) |
| NSO exercise spread | Yes (compensation) |
| ISO exercise | Not usually ordinary wages at exercise for income tax—payroll tax treatment distinct |
Social Security Wage Base (Conceptual)
Each year, Social Security tax applies only up to the wage base. Equity that pushes wages above the base:
- Still pays Medicare,
- Stops Social Security on the incremental dollar (once at/over base).
Additional Medicare Tax
Employees may owe Additional Medicare on wages above thresholds; withholding can lag actual liability—true up at filing.
Planning Notes
- Time vests across tax years if your plan allows—sometimes reduces concentration of payroll taxes and income tax.
- Two employers in one year: one Social Security wage base per person—see job change guide.
Disclaimer
Educational only. Employer payroll systems vary; verify pay stubs and Forms W-2.
Primary sources
| Source | URL |
|---|---|
| IRC FICA provisions | https://www.law.cornell.edu/uscode/text/26/subtitle-C |
| IRS Pub 15 | https://www.irs.gov/publications/p15 |