Tax Withholding Trends for Equity Awards

Tax withholding is one of the top administrative challenges many companies face with respect to their equity plans. Determining tax withholding rates can be complicated, especially globally, and, in the United States, the deposit deadline is often very tight.

The 2025 Equity Administration Survey, administered by the NASPP and Deloitte Tax, reports on how companies manage these and other tax-related challenges.

Requests for Additional Withholding

A question that comes up frequently in the NASPP discussion forum is whether companies can accommodate requests from employees for additional withholding on their stock plan transactions. As noted in the NASPP Blog entry “What You Need to Know About Excess Tax Withholding,” the IRS issued an information letter in 2012, indicating that employees should request additional withholding by submitting an updated Form W-4. The company would then have to withhold at the employee's W-4 rate to honor the request.

Most companies don't want to withhold taxes at the W-4 rate. This process is cumbersome and required the company to aggregate the income from the equity transaction with the employee's other wages for the period to determine the correct rate. Moreover, employees can't simply request a higher tax rate; the additional withholding requested on Form W-4 must be specified as a flat dollar amount. Most employees would likely need assistance to determine what this amount should be.

Yet, just over half of respondents to the 2025 survey indicate that they accommodate requests for additional withholding for at least some participants (e.g., executives) or on an exception basis. Moreover, this is up from just under 40% of respondents in 2022, a notable shift in practice. 

Here are a few considerations for companies who are considering accommodating these types of requests:

• Weigh the administrative burden of accommodating the request against the participant experience. Some recordkeeping platforms support these requests easily, others do not.
• Be cognizant of the precedent you set by accommodating these requests. If you allow an employee to request additional tax withholding once, it’s likely they will expect that future requests will also be accommodated. They may even talk about their experience, creating an expectation among other employees that these requests will be accommodated.
• Companies that aren't going to follow the prescribed W-4 process should consider the risks. There generally aren't penalties to the company for overwithholding, provided the withholding is at the request of the employee. However, if employees select a rate that is below their W-4 rate, the company could be deemed to have underwithheld federal income tax. In this situation, consider limiting employees to either the flat rate or the maximum individual rate to minimize this risk.

Using the Prior Day Closing Price to Calculate Tax Withholding

Companies can ease some of the pressure around tax deposits for RSUs by using the prior day's closing value as their fair market value when determining employees’ taxable income for vesting events. This essentially gives companies a 24-hour head start on the tax calculations. In the 2025 survey, 30% of companies indicate that they define their fair market value for tax purposes as the prior day close, which is up from just 11% in 2016.

Much of this shift was driven by the transition to the T+1 settlement period, but I continue to hear from NASPP members who are exploring using the prior-day close to value RSUs and expect that practices may continue to trend towards this approach in the future. 

Determining Tax Withholding Rates for Non-HQ Employees

Because the United States is unique in offering a flat withholding rate that can be applied to supplemental payments, determining local tax withholding rates can be a challenge for companies that offer equity outside their headquarter country. In many countries, equity award transactions are subject to withholding at the same rate that applies to an employee’s other wages; these rates can vary by employee (and, of course, by country).

The most common approach for equity transactions, utilized by 55% of respondents to the 2025 survey, is to set a flat withholding rate by country, with most opting to use the maximum individual tax rate in each country. Just over 40% withhold at the appropriate individual rate, and utilize a rate provided by their third-party advisors. Those percentages add up to more than 100%, which means some respondents are using more than one approach.

Withholding at the appropriate individual rate is generally the most employee-friendly approach because it maximizes the number of shares delivered to employees. When shares are withheld to cover taxes, it also results in the least amount of cash outflow for the company. But it is the most operationally burdensome as the stock plan administration team will likely be reliant on local payroll teams to provide the individual rates (and, for some companies, to collect the withholding). Local payroll teams may also find this approach onerous and may need to prepare a mock payroll run to determine the correct rates. 

Withholding at a flat rate can mitigate some of the operational challenges but has other disadvantages:

• When shares are withheld or sold to cover taxes, this approach results in fewer net shares delivered to employees. 
• In many countries, local payroll teams will still need to true up the amounts withheld to the appropriate individual tax rates. In many countries, taxpayers are not required to file an annual tax return and the local tax authorities view the taxes withheld through payroll as final (unlike in the United States, where payroll withholding is merely an estimate of an employee’s tax obligation). Thus, for employees who aren't subject to tax at the top marginal rate, refunding the excess withholding through payroll may be the only means by which these amounts can be returned to employees. Nearly 90% of companies that use this approach have local payroll true up the withholding in some or all countries. 

Learn More

This is just a small sampling of the many trends in tax compliance revealed in the 2025 Equity Administration Survey. Check out our webinar "Equity Award Tax Withholding Trends and Best Practices" to learn more about these and other trends.