If you’re an Accenture Managing Director, you pay a lot in taxes.
You make a lot of money, but it quickly gets eaten away when your effective tax rate can jump over 40% with state and federal taxes combined.
However, it can sting even more when you’re paying taxes all year, and then when you file your taxes, you’re hit with a substantial federal tax bill.
Not only that, then you’ll pay hundreds of dollars in penalties because of the amount you owe!
While we could spend all day discussing the tax system and why your taxes are so high, let’s review why you have to write the big check instead.
Why your end of the year tax bill is so high
The main reason you have to write an additional check to the federal government is that you’re underpaying taxes all year.
Don’t worry, it’s not entirely your fault. The underpayment is due to Accenture’s tax withholdings methods.
Paycheck Withholdings
When you started Accenture, you filled out a W4 that determined how much Accenture should withhold for state and federal taxes.
Your withholdings amount shows as “Federal Exemptions” on your MyEarnings statement in the employee information section.
If you’ve been with Accenture for a while, there’s a good chance you set this number when you didn’t make as much money.
However, now that you’re a Managing Director, more than likely, your federal exemptions should be “0,” or you’ll owe even more taxes as the end of the year.
Withholdings on RSU vests and bonus
While the federal exemptions can be a contributor, the main reason most MDs owe a lot to the Federal government at the end of the year is due to the “supplemental income tax rate.”
The supplement tax rate determines your withholdings for RSU vests and bonuses.
It gets confusing because you’d assume your W4 Federal Exemptions would control tax withholdings from all the money you get from Accenture, but that’s not the case.
The supplemental income tax rate, which determines tax withholdings for your annual bonus and all RSU vests, is a flat 22%.
There’s a good chance your effective tax rate is higher than 22%, so that the withholdings could be way too low for your total compensation.
When you receive a big bonus or RSU vests years like when the new MD grant vests, your effective tax rate is pushed even higher, resulting in an even more significant underpayment.
The under withholdings on this vest could leave you with tens of thousands of dollars in extra taxes owed in April.
For most states, Accenture’s supplement income tax rate is towards the top of the state tax brackets; that’s why you might even have a state tax refund each year.
What can you do about it?
The easiest adjustment is to update your W4 withholdings and maybe even withhold an additional amount each year.
Accenture will allow you to withhold an additional dollar amount each paycheck.
It can be pretty challenging to forecast how much additional you’ll owe because you have to factor in your total annual vests and estimate your bonus at the beginning of the year.
The alternative is to monitor your underpayments throughout the year and set money aside for the additional taxes, but this could result in a penalty for the underpayment.
I work with many MDs who have managed taxes and finances themselves but realize the complexity with MD compensation requires extra attention they’d like to outsource.
Taxes are a crucial component of this, and if you’re working with a CPA or financial advisor who isn’t helping you manage your complex taxes, you’re missing out on a critical element of your planning.
