How to size performance share units taxes before your PSUs vest

The payout multiplier and the tax at vest

Find the 150% row first: 15,000 shares, $1,500,000 of wages and $555,000 of federal income tax at 37%. Then look at the 50% row. The tax moves one-for-one with the multiplier, and the 0% row means no tax and no shares.

Nothing is taxed at grant. Nothing is taxed during the performance period either. The taxable event is settlement, when shares land in your brokerage account, and the amount shows up on your W-2 as wages (the IRS reports it in the same boxes as your salary).

The price is held at $100 for illustration only. In practice a high payout often comes with a higher share price, because the same results tend to drive both. So the top case can grow faster than the table shows, and a weak cycle can shrink faster too.

Medicare tax applies to the full amount with no cap. Social Security tax stops at the SSA wage base of $184,500 for 2026, which an executive's salary usually reaches before PSUs settle. State income tax, where it applies, comes on top of everything in the table.

Is your PSU grant big enough to change your tax bracket?

Yes, if the maximum payout would push a married couple's taxable income past $768,700, the 2026 point where the top 37% federal rate begins. Above that line, every PSU dollar is taxed at 37%. Below it, a large payout can carry part of the income into the top bracket.

Most PSU plans pay between 0% and 200% of target over a three-year performance period. The plan document states the exact floor, the cap and any threshold below which nothing pays. Read those three numbers before anything else, because they set the range of tax you need to plan for.

Withholding is where executives get caught. Once an employee's supplemental wages for the year pass $1 million, federal rules require the excess to be withheld at 37% (2026). Below $1 million, the employer may use the flat supplemental rate, which can fall short for someone in the top bracket. Check the current IRS rate and your year-to-date supplemental wages on your last pay stub.

Then add a second test, about concentration. If the maximum payout would add more than about a tenth of your net worth in employer stock, the sale decision deserves as much attention as the tax. A grant can be fine on the tax side and still leave you with too much of your wealth riding on one company.

Where withholding falls short

The concentration test

The PSU calendar, from grant to the April return

PSU dates run in a fixed order, and each one sets up the next. The company controls grant, certification and settlement. You control your estimated payments, your 10b5-1 plan and which shares you sell.

Grant date and the start of the performance period come first, often January 1 of year one. The performance period usually ends December 31 of year three. The compensation committee then certifies results, typically within the first few months of year four.

Settlement follows. Shares are delivered and taxed at that date's price, and shares are usually withheld for tax at the same moment. After that come the open trading windows or 10b5-1 plan dates that control when an officer can sell, then the quarterly estimated tax dates (April 15, June 15, September 15 and January 15). The W-2 arrives in January and the return is due in April.

One year after settlement, post-vest growth on shares you still hold qualifies for long-term capital gains treatment. The income at vest never does. It stays ordinary wages.

If you're retirement-eligible, ask whether FICA is due earlier than income tax. Under the special timing rule, FICA can apply when the award is no longer subject to forfeiture, even if shares settle later. That can pull a Medicare bill into a year you didn't expect.

Dates the company controls

Dates you control

Can a PSU tax decision be undone after certification?

Mostly no. Once shares settle, the ordinary income is fixed at the settlement-date value, even if the stock falls the next week. What stays open are your estimated payments, whether you hold or sell the delivered shares, and your sale plan, each with its own deadline and cost.

Selling later at a loss creates only a capital loss. That loss offsets capital gains and then just $3,000 a year of ordinary income, so it can't wipe out the wage income already reported on your W-2.

An 83(b) election is not available either. PSUs are an unfunded promise, and no property changes hands at grant, so there is nothing to elect on.

Clawbacks are the partly reversible case. Under listed-company clawback policies, incentive pay awarded on financial results that are later restated can be recovered for the three completed fiscal years before the restatement. The tax treatment of repaying wages is complicated, so take that question to a CPA before you need it.

What is fixed at settlement

What stays open, and for how long

Is it too late to plan the sale once shares have settled?

For an officer, yes, often. Waiting until PSU shares have settled to start a 10b5-1 plan leaves you holding fully taxed stock through a cooling-off period of at least 90 days. You owe tax on the settlement value whether the price holds or not.

Hypothetical: Natalie, 51, is CFO of a mid-cap industrial manufacturer, married to a part-time architect, with two teenagers. About $1.3 million of her $3.2 million net worth sits in low-basis employer stock. Her 10,000 target PSUs certify at 150%, so 15,000 shares settle at $100, which is $1,500,000 of wages. Her employer withholds 5,550 shares (15,000 × 37%), leaving 9,450 shares worth $945,000 with a $100 basis. Her employer stock rises from $1.3 million to $2.245 million, about 54% of a $4.145 million net worth. On a $500,000 salary her 5x guideline is $2.5 million, still unmet, and her policy lets her sell half of each net settlement. Selling 4,725 new shares ($472,500) realizes almost no gain. If she waits through a 90-day cooling-off period and the stock drops 20%, 9,450 shares lose $189,000 of value, while income tax is still owed on the full $1,500,000. Whether she sells in the next open window or adds the shares to her 10b5-1 plan depends on her April tax gap and on whether the board counts unsettled PSUs toward the guideline. Our calculator can rerun the share and tax math with your own grant.

All investing carries risk, and you can lose money, including what you put in. That is the point of the example: the tax is certain, the price is not.

Order matters too. Selling old low-basis shares to raise cash for the tax, while keeping the newly settled shares, realizes a large gain for no reason. Newly settled shares carry a basis equal to their vest value, so selling them first adds little tax.

Timing can also fail in the other direction. Paying large estimated taxes in year three on the assumption of a 200% payout, before the committee certifies, ties up cash. The overpayment only comes back as a refund the following year.

Mariner Wealth Advisors does not plan around a guess about whether the metrics will be hit. It writes down the tax and concentration result at the plan's minimum, target and maximum, and sets the sale order before certification. If the maximum payout would add more than about a tenth of your net worth in employer stock, decide before certification how many delivered shares you will sell.

Natalie's sale decision

Three timing errors and their cost

The paperwork behind a PSU payout

Five documents tell you most of what you need, and each sits in a different office. Gather them before the performance period ends, not after the shares arrive.

Start with the grant agreement and plan document, from the equity portal or HR. They list target units, the payout range, the metrics, what happens on retirement, termination, death or change in control, and how dividend equivalents are handled.

The company's proxy statement, filed with the SEC, has a compensation discussion section. It names the metrics, the peer group for relative total shareholder return and the results of past cycles, which show how often earlier grants paid above or below target.

Your pay stubs show year-to-date supplemental wages, which tell you whether the $1 million mandatory withholding line will be crossed. Last year's tax return sets your estimated-payment safe harbor: 110% of prior-year tax when AGI was above $150,000.

The legal or corporate secretary's office holds the stock ownership guideline policy and the trading window calendar. After settlement, the brokerage cost-basis record should show basis equal to the vest value. Mariner Wealth Advisors asks for the same stack in a first review because each page answers a different tax question.

Which answers from HR, payroll and the custodian should worry you?

Vague answers about timing and withholding should worry you most. If HR can't say when certification is expected and how many days later shares settle, estimated tax and trading window planning become guesswork. Ask in writing, and ask early in year three.

Ask payroll: at what rate are shares withheld, and can I elect a higher rate? An answer of 'flat rate only' on a payout under $1 million should worry a top-bracket executive, because the shortfall arrives in April with interest if your estimates were low.

Ask the plan administrator two things. Do earned but unsettled PSUs count toward the ownership guideline? And does retirement mean pro-rata vesting at actual results, or forfeiture? 'Forfeited on any departure' changes your retirement date math completely.

Ask the custodian: is the cost basis on settled shares reported as the vest value, or as $0? If a $0 basis stays on the 1099-B, a later sale reports the full proceeds as gain, and income already taxed on your W-2 gets taxed a second time. You can correct it on IRS Form 8949 using the settlement-date value included in your W-2 wages, but it's easier to catch at settlement.

Questions for HR and payroll

Questions for the plan and the custodian

The first PSU numbers Mariner Wealth Advisors pulls

Mariner Wealth Advisors starts with the grant agreement's payout range and the year-to-date supplemental wages on your last pay stub. Together they show the tax at minimum, target and maximum, and whether withholding will cover it.

Next it compares the maximum-payout share count with your employer-stock percentage and your guideline's retention rule, so the sale order is decided before certification. These are starting points for a conversation, not a forecast of what the grant will pay.

This page covers PSUs that settle in shares of a publicly traded company. Private-company performance awards, cash-settled units and deferred-settlement PSUs subject to 409A follow different timing, and the 37% illustrations apply only to income already in the top federal bracket. Related topics, such as equity compensation advice, bonus deferral and year-end tax checks, have their own pages on this site.