One of the most popular posts on my blog is one I wrote four years ago about reporting tax on RSU. Although I try to do the best I can in deconstructing it, I still get many questions about it every year at tax time.
It’s a difficult topic because there can be many variations. Employers issuing the RSUs don’t help because they are afraid of liabilities. They just say "consult your tax advisor" as if everyone has one. Tax software doesn’t make it easy either. Although there are many variations, the software tends to go by just one. If your situation fits it, you may be able to muddle through. If it doesn’t, the software confuses you more than it helps you because your situation doesn’t match what it thinks you have.
For the longest time I only addressed the issue generically. I refused to work as free tech support for the software companies. If you paid for the software, they should help you with how to use it. Now I give up. I realize people are looking for step-by-step help and the software companies aren’t providing it. Although this may be a little late for this year, there is always next year.
The following is a sequence of screenshots taken from TurboTax Online Premier edition. If you use the installed software or a different edition, your screens may be different but similar. I show TurboTax only because it has the largest market share.
In this post I will start with the most straight-forward case: Net Issuance. It’s probably the most common. It’s also a case TurboTax handles relatively well. I may do other variations in future posts.
In Net Issuance, the employer withholds a number of shares for taxes and gives the employee the remainder. For example suppose you have 100 shares vested but you only receive 60. You just don’t see the other 40 shares. The employer doesn’t use a broker to sell the 40 shares for taxes. It just keeps the 40 shares and puts some numbers on your W-2.
Let’s get started.
Start from Tools on the top right, under the running meter.
Click on Topic Search.
Here comes the first challenge. You won’t find RSU or Restricted Stock Units. Type "employee stock" in the search box and find "employee stock plans" in the list. Click on Go.
From the topic list, you will jump to this screen. It still says Employee stock plans, not RSU. Take a look at the More Info link before you click on Yes.
Now it shows Restricted Stock Units (RSU) as a part of Employee Stock Plans.
The next screen asks you if you sold stocks from RSU. Click on Yes if you sold. If you didn’t sell, don’t enter anything. Wait until you sold those shares you received from your RSUs.
This is just a note about some changes from the IRS. Nothing to do here.
Here TurboTax asks you if you want to take the longer, more difficult, mis-named EasyGuide or the shorter, easier way to just enter on a spreadsheet. If you enjoy the ride, let’s first take the EasyGuide recommended by TurboTax. Later you will see how easy it is with the spreadsheet.
Restricted Stock Units (RSU) is listed in the middle. Choose that.
The name of the employer comes from the W-2 you entered earlier in TurboTax.
A list of things you need. Click on "See an example" for the example we will use.
Here’s the example we will use.
|Closing price on vesting date||$51.61 per share|
|Number of shares withheld for taxes||63|
|Number of shares issued to the employee||97|
|Selling price||$51.07 per share|
|Net proceeds after commission||$4,933.76|
On my 1099-B, Box 6 is checked and Box 8 is blank.
It does some math and then asks you about your sales expenses. Use your net proceeds number to back into the number it wants. $4,953.79 – $4,933.76 = $20.03. Why doesn’t it just ask about the net proceeds number you have on your 1099-B?
After you do the math, it shows you that your math is correct.
My 1099-B does not show a cost basis.
It’s asking you whether you sold the shares from one lot or multiple lots. We will take the simple case of one grant lot. Click on the Explain This link if you want to know more about grant lots.
But it’s talking about exercising stock options and purchasing shares. You are given RSUs. Are you confused yet?
Enter vesting information.
No splits to keep it simple.
No reinvested dividends either, to keep it simple. If you had either splits or reinvested dividends, it’s going to be more complicated.
Now it’s showing a short-term loss because the value of the shares was $51.61 per share when they were vested and the shares were sold at $51.07 per share less commission and fees. Click on the View Details button.
It explains how the numbers are calculated. $4,933.76 is the number from 1099-B. $5,006.17 is value at vesting ($51.61 per share times 97 shares). The difference is a $72.41 loss. Click on the Explain This link about compensation income.
You get this popup. So far so good.
We are done with this sale. Rinse and repeat if you have another sale.
After you are done with all investment sales, TurboTax wants to double check the value of the vested RSUs are included on your W-2. Say yes and make the numbers match.
Now do you want to see how easy it is to enter the RSU sale on a spreadsheet?
Enter On a Spreadsheet
From the "How Do Your Want to Enter Your Investment Sales" screen, choose Enter on a Spreadsheet.
|Description||97 XYZ Corp||Number of shares you sold|
|Net Proceeds||4,933.76||From 1099-B|
|Cost Basis||5,006.17||97 shares @ $51.61, price per share on vesting date|
|Reported on a 1099-B Statement||B = Yes, WITHOUT basis reported to IRS||Match 1099-B|
Now TurboTax offers a review. OK, we go along with it.
It was stock.
No special situations.
It’s looking for wash sales. Answer the question truthfully.
We arrive at the same investment sale summary. This is so much faster than the EasyGuide!
This should convince you that you should not use the EasyGuide to enter RSU sales. The spreadsheet method is much easier to use and understand.