Tax Planning for San Francisco Tech Workers: RSUs, Stock Options & More

San Francisco tech workers often receive 30-60% of their total compensation in equity — RSUs, ISOs, and stock options. With California's top marginal rate at 12.3% (plus the 1% mental health surcharge above $1M), understanding how equity is taxed can save you tens of thousands of dollars.

Understanding RSU Taxation in California

Restricted Stock Units are taxed as ordinary income when they vest. In San Francisco, that means federal tax (up to 37%), California state tax (up to 13.3%), Social Security (6.2%), and Medicare (1.45%). On a $200,000 RSU vest, you could owe over $90,000 in taxes.

ISO vs. NSO: Which Is Better in California?

Incentive Stock Options (ISOs) receive preferential tax treatment — no ordinary income tax at exercise. However, the spread is subject to Alternative Minimum Tax (AMT). Non-Qualified Stock Options (NSOs) are taxed as ordinary income at exercise. In California, ISOs are generally more favorable if you can manage the AMT implications.

The 83(b) Election Strategy

If you receive restricted stock (not RSUs), filing an 83(b) election within 30 days allows you to pay tax on the current value rather than the future vested value. For early-stage startup employees, this can result in massive tax savings if the stock appreciates significantly.

Qualified Small Business Stock (QSBS) Exclusion

Section 1202 allows you to exclude up to $10 million in gains from qualified small business stock held for more than 5 years. California does not conform to this federal exclusion, but the federal savings alone can be enormous for startup employees.

Tax-Loss Harvesting Your Portfolio

If your company stock drops after vesting, you can sell and harvest the loss to offset other gains. This is particularly valuable in California where capital gains are taxed at ordinary income rates — up to 13.3% at the state level.