Why I'm already thinking about December
This time of year, a lot of people with stock comp start asking the same question. It's been a great year at work, the RSUs kept vesting, and now they're wondering what it's all going to cost them in April.
If that sounds like you, the good news is you still have time. Most of the moves that shape your 2026 tax bill have to happen by December 31. After that, the year is what it is.
If you live in Massachusetts, there's a little more on the line. A big vest, an option exercise, or a stock sale can tip you over the state's 4% surtax line, shrink your federal SALT deduction, and leave your withholding way behind. I wrote about what happens at vesting in my RSU tax planning post back in May. Think of this one as the year-end follow-up.
The 4% surtax: where's the line?
Massachusetts taxes most income at a flat 5%. But once your taxable income goes over $1,107,750 for 2026, every dollar above that gets an extra 4%. So your top rate is really 9%. The line moves up a little each year with inflation (it was $1,083,150 for 2025).
A couple of things catch people off guard. Married couples filing jointly don't get a bigger threshold. It's one line per return, not per person. And it isn't just salary. RSU income, capital gains, option exercises, Roth conversions... it all counts.
Let's say a couple earns $850,000 in salary and has $400,000 of RSUs vest this year. That puts their Massachusetts taxable income around $1.25 million. About $142,000 of that is over the line, so the surtax adds roughly $5,700.
Is that the end of the world? No. The 4% only applies to the part above the line. But if you're close and you have some say over timing, spreading income over two years can sometimes keep you under the line both times.
Your withholding is probably too low
This one surprises a lot of people.
When RSUs vest, most companies withhold federal tax at a flat 22%. (It only jumps to 37% once you've had more than $1 million of supplemental wages in the year.) If you're actually in the 32%, 35%, or 37% bracket, that difference shows up as a bill in April.
On a $400,000 vest in the 35% bracket, that's about $52,000 you haven't paid yet. And if the vest pushes you over the surtax line, Massachusetts wants its share too.
The fix is pretty simple if you catch it now. Add up everything that's vested so far this year, plus anything coming in December. Compare what's been withheld to what you'll actually owe. Then make up the difference with extra withholding from your last few paychecks or an estimated payment. The fourth-quarter federal and Massachusetts estimates are due January 15, 2027.
One little trick I like: extra withholding is treated as if you paid it evenly all year. So adding it in December can still help you avoid an underpayment penalty.
What I'd walk through with you before December 31
First, run the numbers. Salary, bonus, every vest (December ones too), and any sales. You can't plan around a line if you don't know where you're going to land.
Then I'd look at these:
- The SALT phase-down. The new federal SALT deduction is capped at $40,400 for 2026, but it starts shrinking once income tops $505,000. You lose 30 cents of the cap for every dollar over, until you're back to $10,000 at around $606,000. Plenty of Massachusetts households are right in that range, and one vest can put you there. If this is a big year and next year looks lower, it may make sense to pay your property tax in January instead of December.
- Your company stock. Selling at vest usually doesn't add much tax. Holding a lot of your employer's stock means your paycheck and your savings depend on the same company. That's a lot of eggs in one basket.
- Losses you can harvest. Losses elsewhere in your portfolio can offset gains when you sell. Massachusetts taxes short-term gains at 8.5% instead of 5%, so how long you've held something matters here too.
- Pre-tax savings. Maxing out your 401(k) and HSA lowers your federal taxable income and can help with the SALT phase-down.
- Charitable giving. Donating shares you've held more than a year lets you skip the capital gains tax on them. Starting this year, itemizers can only deduct giving above 0.5% of AGI, so bunching a few years of gifts into a donor-advised fund can help you clear that hurdle.
Have options or ESPP? A few extra things
If you have NSOs, exercising them works a lot like an RSU vest. The spread is taxed as ordinary income, and the same withholding and surtax questions come up.
ISOs are trickier. If you exercise and hold the shares into next year, the spread can trigger the federal AMT. If you sell in the same calendar year, the AMT goes away, but then the gain is taxed as ordinary income. Please run the AMT numbers before you exercise in December!
With ESPP shares, part of your gain is usually taxed as ordinary income when you sell, depending on how long you've held them. Check your purchase dates before you sell to harvest losses or diversify.
Let's get you to the finish line
Equity comp is where investing, taxes, and cash flow all run into each other. One decision, like when to sell or exercise, touches all three. That's exactly why I bring planning, investments, and tax together for one flat fee.
If you've got vests or an exercise decision coming up before December 31, grab a time on my calendar. We'll look at your numbers together while there's still time to do something about them.
This post is for education only and isn't personal tax, legal, or investment advice. The numbers here are for the 2026 tax year and can change, so please talk with a professional about your own situation.