Episode
Wealthyist E43 | Equity Compensation - What It Is, Tax Pitfalls, and Planning Tips
- Podcast
- Wealthyist
- Published
- Nov 28, 2025
- Duration seconds
- 1152
- Processing state
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Summary
In this episode of Wealthyist, host Dr. Brian Jacobsen speaks with Tom Berkholtz, Financial Planning Manager about Equity Compensation – what it is, why companies use it, the main types, tax pitfalls, and planning tips. Tom and Brian discuss why companies offer equity compensation, including its primary goal: to attract, retain, and motivate top talent (especially in tech/AI race – Google, Apple, Nvidia, etc.). Equity compensation can act as “golden handcuffs” via vesting schedules (e.g., 25% per year over 4 years or a 3-year cliff). The strategy can work for both public and private companies, but private-company equity is riskier (needs a liquidity event like IPO or buyout to have real value. Tom details the main types of Equity Compensation: Restricted Stock Units (RSUs) – where an employer gives you actual shares (not an option to buy). IN that strategy, the RSU vests over 3–4 years → treated as ordinary income on vest date (shows up on W-2). Tax trap: Employers often withhold only 22% federal tax; high earners (37% bracket) can owe big at tax time + possible underpayment penalty. The conventional advice is to “Sell immediately after vesting” (because you already paid tax at the vest price). Tom says not always best — if you believe in the company and it’s not too concentrated, holding some can make sense. They then discuss Non-Qualified Stock Options (NSOs/NQSOs), which are the right (not obligation) to buy shares at a fixed “strike price” (usually within 10 years). When you exercise and sell, a NSO, the bargain element (market price − strike price) is taxed as ordinary income. Employer gets a tax deduction, which is sometimes why employers prefer NSOs over ISOs. Incentive Stock Options (ISOs) are less common now. There's a potential for long-term capital gains tre…