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Do I owe Social Security and Medicare tax on my equity compensation?

Answer

It depends on the type. RSUs at vesting and NSOs at exercise are treated as wages, so they're subject to Social Security (up to the $176,100 wage base for 2025) and Medicare tax, including the extra 0.9% Additional Medicare Tax on wages above $200,000 single or $250,000 married. That payroll tax comes out on top of income tax, which is why a big vest shrinks more than you'd expect. ISOs are different: at exercise they're not subject to Social Security or Medicare, and a qualifying disposition produces capital gain, not wages. ESPP discounts also generally escape payroll tax. So the FICA bite is a real cost for RSUs and NSOs but largely absent for ISOs and ESPP – another reason the option type shapes your strategy.

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