Restricted Stock Units (RSU) Sales and Tax Reporting

RSU stands for Restricted Stock Units. It’s the new form of stock-based compensation that has gained popularity after the employers are required to expense employee stock options. The biggest difference between RSUs and employee stock options is that RSUs are taxed at the time of vesting while stock options are usually taxed at the time of option exercise. The employer is required to withhold taxes as soon as the RSUs become vested.

In a previous post, Restricted Stock Units (RSU) Tax Withholding Choices, I wrote about what I chose among the three tax withholding choices — same day sale, sell to cover, and cash transfer — and why. This time I’m writing about how to account for taxes on the tax return, especially if you use tax software like TurboTax or H&R Block At Home.

I’m going to use this simple example:

Suppose you had 100 RSUs vested on October 31. The closing price of the stock on that day is $50, and the tax withholding rate is 40%.

Regardless of which choice you made for tax withholding — some employers don’t give you a choice  — your employer will include on your W-2 as wages the total value of the vested RSUs. In our example, it’s $50 * 100 = $5,000. They will also withhold the same amount of taxes regardless of your choice. In this example it’s $5,000 * 40% = $2,000. They will also include the taxes withheld on your W-2. How you account for taxes on your tax return for the rest will depend on your tax withholding choice.

1. Net Issuance. In net issuance, you don’t have a choice about tax withholding. The employer will deduct a number of shares from your vested shares and give you the rest. You do not receive a 1099-B from a broker for the shares you didn’t receive. In our example, although your employer says you have 100 shares vested, you actually only receive 60 shares.

You don’t have to report anything for the vesting event. Use the numbers on your W-2 as-is.

Make a note of the closing price on the vesting date. You have to remember the date and this number until you sell the remaining shares. In our example, that’s $50 per share. If you sell the 60 shares for more than $50 per  share, you will have a capital gain. If you sell them for less, you will have a capital loss. You report the capital gain or loss in the year you sell the remaining shares. For a step-by-step guide on how to report the sale in TurboTax, see Restricted Stock Units (RSU) and TurboTax: Net Issuance.

2. Same Day Sale. If you make this choice, you sell everything. Let’s say on the day after the vesting date the shares are sold for a total of $4,989. The employer withholds $2,000. You are left with $2,989. At tax time, you will receive a 1099-B from your broker listing the stock sale proceed of $4,989. You enter in TurboTax or H&R Block At Home, or on Schedule D of Form 1040:

Description: 100 shares XYZ, Inc.
Net Proceeds: 4,989
Date of Sale: 11/01/20xx
Cost Basis: 5,000
Date Acquired: 10/31/20xx

Your cost basis is the amount your employer included on your W-2, which is the closing price on the vesting date times the number of shares vested. In this example, you will show a short-term loss of $11 on your tax return because of the brokerage commission and the SEC fee. The income and the associated tax withholdings are already included on your W-2. Use those numbers as-is.

3. Sell to Cover. [Update on April 9, 2008: I wrote a follow-up post RSU Sell To Cover Deconstructed to clarify this option. Jump ahead to that post if you'd like.] If you make this choice, or if you don’t have a choice, your employer sells just enough shares to cover the tax withholding. The key difference between Sell to Cover and Net Issuance is that the employer uses a broker in Sell to Cover but doesn’t use a broker in Net Issuance. Suppose 41 shares are sold for $2,030. The employer takes away $2,000 for tax withholding. You are left with $30 in cash and the remaining 59 shares. At tax time, you will receive a 1099-B from your broker listing the stock sale proceed of $2,030. You enter in TurboTax, H&R Block At Home, or on Schedule D of Form 1040:

Description: 41 shares XYZ, Inc.
Net Proceeds: 2,030
Date of Sale: 11/01/20xx
Cost Basis: 2,050
Date Acquired: 10/31/20xx

Once again, your cost basis for the shares you sold is the amount your employer included on your W-2 for those shares, which is the closing price on the vesting date times the number of shares you sold for tax withholding ($50 * 41 = $2,050). After the sale, you show a short-term loss of $2,050 – $2,030 = $20 because of the brokerage commission and the SEC fee. Again, the income and the associated tax withholdings are already included on your W-2; you just use those numbers as-is.

For the remaining 59 shares, you keep a cost basis of $50 per share ($50 * 59 = $2,950). You have to remember the date and this number until you sell the remaining shares. Whenever you sell them, you enter in TurboTax, H&R Block At Home, or on Schedule D of Form 1040:

Description: 59 shares XYZ, Inc.
Net Proceeds: whatever you sell them for, copy from 1099-B
Date of Sale: your date of sale
Cost Basis: 2,950
Date Acquired: 10/31/20xx

You will show a short-term or long-term gain or loss for these remaining shares depending on your date of sale and the sale price.

4. Cash Transfer. If you make this choice, you give your employer cash for the tax withholding. They don’t sell any of your shares. You can sell the shares either immediately or keep them for however long you like. The tax accounting is the same as if you bought the shares at the closing price on the vesting date. Whenever you sell them, you enter in TurboTax, H&R Block At Home, or on Schedule D of Form 1040:

Description: 100 shares XYZ, Inc.
Net Proceeds: whatever you sell them for, copy from 1099-B
Date of Sale: your date of sale
Cost Basis: 5,000
Date Acquired: 10/31/20xx

You will show a short-term or long-term gain or loss for these shares depending on your date of sale and the sale price. The income from RSU vesting and the associated tax withholdings are already included on your W-2, and you just use those numbers as-is.

That’s all. Hope this is helpful to someone looking for info on the tax treatment and implications of RSU sales.

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Comments

  1. Anonymous says

    In sell to cover, do you not account for the other 59 shares which you’ve held on to? Being given only the sell to cover option, and quarterly vestings of RSUs in 2007, I vest four times during which stock is automatically sold to cover taxes. I sell the remaining shares from three of these four vests during 2007. 1099B lists these seven transactions. My W2 however, lists ALL the RSU vested value. Do I not worry about reporting on schedule D the vested value of the shares I’m still holding?

  2. chris says

    great question anonymous1- I didn’t get a choice on how my rsu’s were handled- the company sold enough on the day of vesting to cover the taxes they withheld. In one instance, I had roughly 152 shares vest, and 54 were sold immediately to cover the taxes. I’m pretty sure I’m in bucket b in the description above, but I’m interested to see the response to your q.

  3. Harry Sit says

    If you are holding on to the remaining shares (59 shares in my example), you don’t account for them now. You account for them when you sell them, which can be the same year or many years later. At that time, you record your sales proceeds and a cost basis which equals to the value of those shares at the time of vesting. Basically you treat those shares as if you bought them at the price your company calculated on your W-2. That’s why I said you must remember the value of those remaining shares at the time of vesting until you sell them.

  4. Jagadeesh says

    hi
    here is my problem. 100 RSU vested in april’07 for $20 and 39 RSUs were sold to cover the taxes @ $20 (total 39*20=780) on the same day as vesting. But, in my W2, i got a income for 100 RSUs (100*20=$2000). how do i report the 39 RSU’s sold to cover for taxes?

  5. Matt says

    Thanks for your helpful post on the proper tax treatment for RSUs. I have a question regarding restricted stock awards. In 2007, three relevant transactions occurred:

    Jan07 – Some shares vest and a sale to cover occurs

    Mar07 – Sale remaining shares from those that vested in Jan07

    Dec07 – Additional shares vest and a sale to cover occurs

    I received documentation for all three transactions, but I only received one 1099-B and it just covers the Mar07 transaction. Do I need to account for the Jan07 and Dec07 transactions on my tax forms? If so, should I have received a 1099-B for those or do I just use the documentation I received from the transaction – a “lapse confirmation” showing shares lapsed, shares sold to cover taxes, and net shares?

    Thanks!

  6. Harry Sit says

    Matt – Same answer as I gave to Jagadeesh in the previous comment. Some employers don’t use a broker for the sell-to-cover transactions and they don’t show on 1099-B. In that case, you don’t have a gain or loss on sell-to-cover. The sale proceeds equal exactly the tax withholding reported on your W-2.

    Suppose 40 shares were sold to cover tax withholding of $1,000, I would still enter on Schedule D:

    1/xx/2007 40 shares XYZ Corp. sale $1,000 cost basis $1,000 gain/loss $0

    Make similar entries for the December sell-to-cover transaction.

  7. Anonymous says

    Great info on RSU’s! Current employer is a MasterLimitedPartnership (PTP) – so instead of company “stock”, am dealing with receiving company “units”. Do you know if these are handled & reported on income tax same as RSU?
    Thanks – DB

  8. Anonymous says

    Thanks very much for the details. In turbo tax I entered all my details. But when I click Done it takes me to Employee Stock Plan Result page and shows the following details in a table
    Stock Plan, Amt we computed, Is it on w-2, Actual Amount on w2.

    Here is an example:
    No. of Stocks vested : 100
    Price : $100
    No. of Stocks sold to cover the tax : 40

    The results shows in the above Turbo Tax page

    Stock Plan : RSU
    Amount we Computed : $4000
    Is it on W2 : Yes
    Actual Amount on W2: BLANK

    What should be the value in the Actual Amount column 4000 or 10000. In W2 I have 10000 as my earning. if I enter 10000 then my return goes up by around 2000. Please let me know what should be the correct amount.

  9. Harry Sit says

    You must have a different version of TurboTax. My deluxe version doesn’t have a table like that. Anyway, you should look at the Schedule D it produces for you. Put in a value, then open the Schedule D form. The schedule D should show $0 gain/loss for those 40 shares.

  10. Anonymous says

    TFB, Nice Information. Very Useful. However in my case, my employer withheld stock to cover the taxes. Is that the same as sale to cover. The 1099 from the broker does not show the sale but the W2 has the taxable income from the vested RSU’s. Should anything be listed on the my schedule D?
    Example:
    100 RSU Vested
    30 withheld
    70 RSU available to me.

  11. Harry Sit says

    @Anonymous – One more time, same as sell to cover, except no broker was involved and no 1099-B. Same answer as in comment to Jagadeesh and Matt.

    Example:
    100 RSU Vested
    30 withheld
    70 RSU available to you

    Suppose the closing price on the date of vesting is $10 per share. Enter on Schedule D:

    Description: 30 shares XYZ Corp.
    Net Proceeds: 300
    Date of Sale: xx/xx/xxxx (same as vesting date)
    Cost Basis: 300
    Date Acquired: xx/xx/xxxx (same as vesting date)
    Gain/Loss: 0

  12. ap says

    Hello,
    Thanks for the web site.
    I need some help.

    There were 4 times last year when
    my shares vested (4 shares each time) and the company did a sell to cover each time.

    I DID NOT sell any of these.

    Now, I did purchase a few shares thru my company’s ESPP program.

    So, do I need to worry about wash sales due to the RSU sell to cover??

    TurboTAX deluxe does not give me a screen for RSU sales. Does it go under Investement sales as a stock sale?

    THANKS !!
    corsica

  13. Harry Sit says

    ap – You only worry about wash sale when the sale resulted in a loss. If a broker isn’t involved, the company’s sell-to-cover usually creates neither a gain nor a loss. If you do have a loss from sell-to-cover, then you have to take into account the wash sale rules.

  14. ap says

    Thanks TBF. I think a loss is involved (but very small) as there was a broker fee of $5 per sale.

    So, wash sales would apply, correct? I did have a purchase of ESPP during this time.

    another question: Should I check the box where it says taxes were withheld on this sale?

    In my case, the CO did a sell to cover and amount sold was reported in my W-2 under taxes withheld.

    Finally, would this go under Investment sales in TurboTax?

    Thank you!!

  15. Harry Sit says

    ap – If you think of the RSU sell-to-cover transaction as this series of transactions, it will become very clear:

    - The company pays you a cash bonus (income on W2)
    - You use the cash bonus to buy shares (cost basis in shares)
    - You sell some shares (Schedule D gain/loss = sales proceeds minus cost basis minus brokerage fee if any)
    - You turn over the sales proceeds to the company for tax withholding (tax withheld reported on W2)

    So if you bought shares within the wash sale window after taking a small loss, if I were you I’d apply the wash sale rule, i.e. not take the loss on the sale, but increase the cost basis on the ESPP shares by $5.

    ‘No’ to the tax withheld checkbox and yes this goes under investment sales.

  16. Maxwell's demon says

    Here’s a tricky one:

    My employer only gives the option to sell to cover

    The sell to cover happened the day after vesting and the share price had fallen significantly

    My employer regular pay to make up the difference

    My W-2 shows I’ve paid tax on the full value of the shares on the day they vested

    I think I can report a capital loss for the sell to cover as it was a lower price than that reported on my W-2 and I made up the difference out of pay

    But… my 1099 does not have an entry for the sell to cover – can I still report it on Schedule-D?

  17. Harry Sit says

    Maxwell – Whether you receive a 1099 or not, you still sold shares. If you sold for less than your cost basis, you had a loss. See my previous comment on how the sell-to-cover is deconstructed.

  18. LM says

    LM
    I had 8000 RSU shares vest in small blocks between years 1998-2001. I’ve now sold 2000 shares, do I have to use FIFO methodology to report basis to IRS? Also, I’ve heard different advice regarding what stock price can be used for tax basis. Can one use EITHER the grant date price or vesting date price as tax basis?
    Thank you!

  19. Harry Sit says

    LM – Your basis in each lot is the amount of income your employer included on your W-2. If they used price on the vesting date, you must also use that price. If they used price on the grant date (although I haven’t heard of any such case), you must also use that price. Unless you specifically identified the lot(s) at the time you sold those shares, you must use FIFO. You can’t arbitrarily select lots after the fact. See Identifying Shares You Sell on Fairmark.

  20. Anonymous says

    Hello,
    Here is a estimated tax question and not an RSU question :)

    I’ve never had to pay estimated taxes thus far although I owed some taxes last year and a lot this year.

    Now, TurboTax printed out quarterly estimated tax vouchers for me.

    What is the recommended approach here? Should I pay them or just change withholdings?

    THANKS!

  21. Harry Sit says

    Anon – Change withholdings. It’s much easier. There is no quarterly deadline. You don’t have to remember to mail in the check. You don’t have to remember how much you paid. Your employer reports it for you on your W-2.

  22. JackieB says

    I had restricted stock units that vested in 2007. The month before vesting- I signed an agreement with my company that all shares would be sold upon vesting. The stock vested at $31 per share. The stock sold for $29. The $31 per share award is included on my w-2 as wages in box 1. I am using turbo tax to figure my 2007 taxes. The difference between the price awarded and received is about $10,000 loss. Since the captal gain it should offset is included on a W-2- Is there any way to recognize this loss in 2007? I would appreciate any advice or guidance. Thank you.

  23. Harry Sit says

    JackieB – It’s just as if you employer gave you a cash bonus and you bought those shares at $31 and sold at $29. If you sold other investments which produced capital gains or if you received capital gains distribution from some mutual funds, the loss will offset those gains. After that, you can offset $3,000 of ordinary income. If you still have more loss, the loss is carried forward to the next tax year.

  24. Mahesh says

    I made a post on my blog about how to handle RSU’s in Turbo Tax Premier. Thanks for your tips that helped me get an understanding. link

  25. Anonymous says

    Under the “Sell to Cover” option, I understand that you show the gain or loss on Schedule D (Capital gains), but what I need clarification on is the tax amount associated with the withholding shares. The company held for taxes 100 shares at a market value per share of $25…. so is that $2500 added to your Fed Income tax witheld or is it already in the W2?

  26. Tee Dee says

    thanks for the info on the sell to cover. I understand about reporting the sale on Schedule D. My question is about all the fed tax, fica medicare, fica social security, state tax on the RSA transaction advice. Does that add into what is on my W2? it did not look to me like that was included on my W2, based on reviewing my pay stubs for the sale time frame. for example, if the sale advice says fed tax paid is $100, and W2 says fed tax paid is $345, should tax paid on 1040 be $445? (seems like self-evident, but since I;ve typed it all now…)

  27. Harry Sit says

    The RSU related income and tax withholdings are already included in your W-2. Use the numbers from W-2 as-is.

  28. Sridhar says

    Hi,

    I did cash transfer for paying the tax (your option 3). How should the with holding be shown on W2 ?

    The cost basis for RSUs was used to show the income correctly, but the taxes withheld does not include the tax money I paid in cash. W2 shows this under Year to date deductions as Restricted stock offset and last payslip 12/31/2007 includes this in after tax deductions. I am confused as to what to show in Schedule D and how to get the tax withheld included in filing for this year.
    Any help would be great.

    e.g:
    No. of RSUs 150
    Cost Basis $7.86
    RS earnings : 1179

    Restricted Stock offset is shown as 677.33 Th Cash transfer I did was actually $501.67 (42.55% tax)

  29. Harry Sit says

    Sridhar – You did cash transfer. No shares were sold. Therefore nothing to report on Schedule D for last year (unless you sold the shares later in the year). Use the W-2 numbers as-is. Both the 1,179 income and 501.67 taxes you paid are already included on your W-2.

  30. Anonymous says

    My husband has RSU and on his statement of taxable income it list

    10/28/07 vested 68 shares Value basis 13.57 , W-2 income 922.76.

    He is in cover to sell so on 10/28/07 57 shares sold at 13.11 W-2 income is 773.49.

    In turbo tax I enter in the 57 shares. It ask me for a value lot in which I enter the 68 shares at market price 13.57 vested on 10/28.

    On the Statement of taxable income both the 922.76 and the 773.49 are listed as income but in turbo tax it list only th 773.49 as W-2 income.

    Have I done something wrong.

  31. Anonymous says

    Thanks for the detailed information. Does the RSU vesting schedule invalidate a loss (due to wash rules)? More specifically, say 100 shares vested on Jan 10 2007 as a part of a quarterly vesting schedule. So, 100 shares would vest on Apr 10 2007 as well. If I sell 100 shares vested from Jan 10, at a loss on Apr 3, Can I get the tax adjustment for the loss. Any ideas?

    Thanks,
    Mak

  32. Harry Sit says

    Mak – For the purpose of applying wash sale rules, treat RSU vesting as buying shares. In your example,

    1/10/07 buy 100 shares
    4/3/07 sell 100 shares at a loss
    4/10/07 buy 100 shares

    I would say the sale on 4/3/07 is a wash sale because you bought the same stock within 30 days after the sale. For more info on wash sale, see Wash Sales 101 on Fairmark.

    Previous anon – Please read this post, the comments, and the follow-up post for sell to cover again. It’s already been covered many times.

  33. Anonymous says

    Would taxation and reporting of taxes be different if the company isn’t public? What if I’m granted RSU’s w/c are fully vested, do I need to pay income tax on this now? What would be my options for paying the taxes, since I can’t sell because the company is not yet public?

  34. A&F Tax Guy says

    Excellent article! I have a simple question from an employer’s side which I cannot find an answer for:

    When restricted stock vests, should the taxable income (included in Box 1, 3, 5…) also be reported under ‘Box 12 Code V—Income from the exercise of nonstatutory stock option(s)?’ Or, are there no reporting requirements, allowing the employer to include it in Box 14 at their discretion?

    Thanks for your help!

  35. PayrollMan says

    Was there ever an answer to the May 15th Question from Tax Guy ?
    I have the same exact question about W2 reporting from an Employers side.

  36. Harry Sit says

    Sorry I don’t have any insight into what an employer is supposed to do with regard to W-2. I imagine employers who issue RSUs have accountants and tax attorneys advising them.

  37. TaxMan says

    TFB – Thanks for providing the information. It has been very useful.

    I have a couple questions regarding RSU. My wife has 1000 RSUs vested 4 times (250 RSU each) in 2007 on 3/31, 6/31, 9/31 and 12/31. At each vesting schedule, say 100 shares were sold to cover the tax. The brokerage firm reported the sell-to-cover a few days after each vesting date on 1099-B. For the last vesting, it didn’t report the sales for 2007, but rather in 2008. Should I report the sell-to-cover for the last schedule vesting in 2007 return or 2008 return? If I report in 2008 return, then the income number of 2007 from 750 shares do not match with her company report in W-2 of 1000 shares, in which case I gained some tax refund. Is it a problem? Do I need to report the 1000 shares vested in 2007 even though the last sale was actually occured in early january of 2008? Any answers are appreciated.

  38. Harry Sit says

    TaxMan – You still report the income and tax withholding for 1,000 shares in 2007 according to the W-2 issued by the company. You report the last sale of 100 shares in 2008 but the sale shouldn’t have too much tax consequence (maybe a small gain or loss). See the follow-up post RSU Sell To Cover Deconstructed.

  39. TaxMan says

    TFB – I’m using Turbo Tax Premier and if I only reported the first three sales from the 750 shares vested, Turbo Tax calculated the income only from those 750 shares and at the end it asked me whether the calculation matched with that in the W-2. Obviously it was not matched because the W-2 report higher income (from the total of 1000 shares). I had to say NO to the question. As a result, Turbo Tax subtracted the income from the last 250 shares from my 2007 W-2 income; thus yielding some additional refund. I don’t think this is correct, but I don’t know how to correctly enter the vesting info for the last 250 shares. I tried to create another investment sale with no sale data and just entered lot award with those last 250 shares, then Turbo Tax calculation matched with the figure in W-2. However, Turbo complained at the error check that this investment is incorrect because there were no sale date, sale price, etc. Any helps with this problem is much appreciated.

  40. Harry Sit says

    Mahesh posted the TurboTax Premier step-by-step with screenshots in the comments to this post. To be honest I think the extra guidance in TurboTax Premier is making it more confusing to you than being helpful. I suggest that you either say YES to that question so TurboTax doesn’t modify your W-2 or not use the RSU section altogether and just enter 3 regular investment sales instead.

  41. grateful reader says

    Thanks for the clear, concise description of tax handling for RSUs. Had to deal with this for the first time this year, and your writeup was a life saver. You’ve gained another reader here.

  42. lesley says

    It is now 2/09 can you clarify how I would report this RSU. This is all the different info I find on trade confirmation 1099 B
    Grant date 11/18/03, Units granted 500, Lapse date 12/1/07, Date Acquired cover of short 12/3/07. Grant Price $0, FMV $25135.00, 148 units witheld for taxes, remaining units 358. Tax due 7402.26, Tax Paid 7439.96, fee $35.36. Sold date 11/17/08, Sold 200, price 52.9501 amount 10590.02.

    Is the 12/1/07 date the vested date? is that the same as the acquired cover of short or is 12/03/07? Are either of those two dates the vested/release date?. Would the market price be the 52.9501…is that the price I paid per share? I get that the shares witheld are 148 and 7439.96 was paid in taxes…but when? In 2007? Or when 200 were sold on 11/17/08?

    The terms used from the broker somewhat differ then that of turbotax…so it is confusing to know which is what and where to put it?

  43. Harry Sit says

    lesley – 12/1/07 is the vesting date but it was a Saturday so you got the RSUs on the next business day 12/3/07. You paid the tax $7,439.96 in 2007. The rest is covered in the follow-up post “RSU Sell To Cover Deconstructed.”

  44. lesley says

    When filing 2007 tax form, I didnt realize at the time that if I received lapsed rsu (12/2/07) that I had to file it for 2007. I thought I only had to when stock was sold. I am just learning this now b/c we sold some lapsed RSU 11/08 and am investigating it. I suppose that means I must file and amended 2007 return!

  45. JoeBlow says

    Thanks for this info! My company switched from offering stock options to awarding RSU’s and I just had my first lump sum vest this week.

    The company withheld 38% of the shares to pay taxes, so from an award of 500 shares, I am now left with 310.

    My question is, since my tax bracket is not 38% (more like 25%-28%), would the extra money withheld be returned to me at tax time assuming I don’t owe more to the govt? It seems to me, that I was just overcharged for this stock grant. Even the wealthiest people are only taxed at 35%. I just don’t understand how they came to the 38% withholding figure.

    I think I have a handle on the remaining shares and how to report any income or loss.

    Thanks.

  46. Harry Sit says

    JoeBlow – The withholding includes taxes for federal, state, and Social Security and Medicare. It can easily get to 38% if you add 25% federal, 5% state and 7.65% SS and Medicare. If your tax bracket isn’t that high, you will get the difference back for federal and state at tax time next year.

  47. Sammy says

    Under RSU, I was awarded 500 shares of my company. I used the option to sell all shares. Company held 200 shares for tax purposes and sold only 300 shares at my brokerage account. My 1099B shows 300 shares sold and sale value. Also my W-2 shows FMV for 500 shares as award and FMV of 200 shares for tax withholding. As my 1099-B only show 300 share sale, what do I report as cost basis for this?
    Thanks.

  48. Naren says

    Say, company sold 41 RSUs at $50 to cover for the taxes. If I take capital loss in Schedule D from other stock sales to be -$5K. Does this mean my net capital loss is -5K + 41*50 because 41 shares were sold at $51 with cost basis 0 to cover for taxes? and then I can deduct 3K loss from total income.

  49. Harry Sit says

    Naren – No. The 41 shares sold have cost basis at the price they included as income on your W-2. See the follow-up post “RSU Sell To Cover Deconstructed.”

  50. kate says

    Can I assume that Cost Basis is the same thing as Gross Dollars on my Smith barney Transactions History Statement?

  51. Tom says

    In 2002 and 2003, I received certificates of stock from my company following vesting of restricted stock. The shares were subsequently sold, and I now need the cost basis to determine net revenue for taxes. Unfortunately, my company managed the transactions internally, and there are no broker records where this is broken out. On the certificates, there are dates shown in the lower left corner. Is it possible that those are the vesting dates (which could then be used for cost basis purposes)? The reason I ask this is that a third certificate was issued in 2005. This was handled by a broker, so I know the vesting date, and it corresponds to the date shown on the bottom left corner of the certificate. Thanks for your help.

  52. Ali says

    My RSU situation is sort of complicated. I had 108 shares given to me by my company in March 2008 that were not supposed to completely vest for 2 years. My company was purchased in late 2008 (prior to the shares being vested) and as part of the buyout, the company paid out the shares (as if they were fully vested) in the form of a ash payout to a brokerage firm. I was taxed at my normal tax rate, as if the award was a cash bonus. The income and taxes were included on my W-2. However, I received a 1099 with all $0 amounts. After speaking with the brokerage firm that handled the transaction, they explained that the shares were never officially awarded (since the company dissolved) and that they were only used by my company to ditribute the cash equivalent to the shares. So my question is, do I treat the money as an Asset that generates Capital Gains (like it’s a stock sale) and complete Schedule D or do I treat it as additional income that’s already included on my W-2 and do nothing further? I’m using TaxCut to prepare my taxes.

  53. Paul says

    I received an RS award in 2008 (334 RSUs @ $4.30). I am using Turbo Tax Deluxe, Where is this info reported, so I can pay the tax on this?

  54. J says

    Regarding your Oct 13th post: “I suggest that you either say YES to that question so TurboTax doesn’t modify your W-2 or not use the RSU section altogether and just enter 3 regular investment sales instead.”

    What are the implications of saying YES or entering regular investment sales?

    I ran into a similar situation where Turbotax wanted to correct my R2. Its RSU calculation (that it wanted to use to update my 2008 W2) seemed to add the vesting value for RSUs from 2007 to the vesting value for 2008 because I sold some RSUs during 2008 that vested in 2007. The vesting value for 2007 had already been account for on my 2007 W2.

  55. Harry Sit says

    @J – I said this a few times in the replies already. I think the simplest way to do this is bypassing the TurboTax handholding for RSUs. Use the Spreadsheet-Style Entries. Not all versions have the extra guidance. That guidance really confuses you more than helping you. The Spreadsheet-Style Entries are much simpler and clearer.

  56. Liz Mitchell says

    How is tax computed on RSU’s if the company does not deliver the RSU’s to the employee until 15 days after the vesting date, and does not allow any transactions during this period (ie employee still is restricted from using the RSU’s)? Assume company withholds just enough shares to cover the tax withholding as calculated on the date of vesting (Sell to Cover).

  57. Harry Sit says

    Liz – Did you ask the company in question? I believe the tax is calculated based on the date when the RSUs are not subject to forfeiture (vesting date). When the RSUs are actually delivered to you or when you are able to sell the shares are not relevant.

  58. Linda Dalton says

    That was so well explained–thank you very much!! We have never received RSU’s before, and I had many confusing questions in my mind regarding the tax handling of these shares. Your article explained everything very clearly!!

  59. confused says

    I have yet another RSU question. I’m doing my taxes. On my W-2 the amount of money I made from the sale of my RSU’s is included with “Wages, Tips & Other Compensation.” My company sold shares for taxes also. How do I avoid double counting this. I’ve included Wages, Tips and Other Compensation on line 7 of the 1040, but then it asks about the schedule D on line 13. If I add those 2 together I’m double counting proceeds from my RSU’s. I’m going crazy. Note, I’m not using Turbo Tax or anything.
    Thanks!

  60. tcmocca says

    How do I determine the cost basis for Restricted Stock Units where a single sale consists of multiple acquisition dates and acquisition prices?

  61. Jeremy says

    Very helpful information here, thank you. I do have the same question as confused on 7/18/2009 though. If the value of the vested RSU’s is added to my wages for the year they vest, some shares sold automatically to cover taxes and I then later sell the remaining RSU’s, aren’t I being double taxed when I then report the sale on my Schedule D?

  62. Bruce Brumberg says

    With restricted stock units, the biggest sources of confusion arise when companies use automatic share withholding for the taxes. Instead of getting all the shares granted, you just get the net shares.

    For example, instead of getting the 1,000 shares in the grant, you only get 750 in your account. You are still taxed on the value of the 1,000 at vesting and need to remember when you eventually sell the 750 shares, that you use the cost basis for this number of shares and not the 1,000 shares.

  63. TaxBozo says

    My company issued me several RSU grants throughout the year. For each one, they sold to cover. The records that came back from the broker has the sell-to-cover transactions arranged in FIFO order, so for example:

    Grant 1: 2/1/2009 100 shares, 40 are sold to cover from grant 1 lot.
    Grant 2: 3/1/2009 100 shares, 40 are sold to cover from grant 1 lot.
    Grant 3: 4/1/2009 100 shares, 40 are sold, 20 from grant 1 & 20 from grant 2.
    Grant 4: 5/1/2009 100 shares, 40 are sold to cover from grant 2.

    This style of reporting seems to contradict the simplified tax statement you have above, and considerably increases my tax liability over these sales. I have heard a rumor at work that I can ignore the broker reports because the sales were made to obviously cover taxes for each grant, and this is adequate documentation of lot allocations so that I can claim them as:

    Grant 1: 2/1/2009 100 shares, 40 are sold to cover from grant 1 lot.
    Grant 2: 3/1/2009 100 shares, 40 are sold to cover from grant 2 lot.
    Grant 3: 4/1/2009 100 shares, 40 are sold to cover from grant 3 lot.
    Grant 4: 5/1/2009 100 shares, 40 are sold to cover from grant 4 lot.

    Is this adequate documentation? (I only have email from my employer and the RSU contract that state this.)

    TaxBozo

  64. Claudia says

    When my RSU vested, I used the option to sell all shares. My company used a broker so I’ve just received a 1099B that lists the gross proceeds instead of the net proceeds (as your “RSU sales and tax reporting” post suggests).
    Where can I report the broker fees?

    Thanks!

  65. Lisa says

    I believe I understand everything that you have said. Thank you for that. My question is…I sold 847 shares. The shares were acquired on different dates. Do I have to input them in turbo tax by the different acquisition dates? Thanks again.

  66. Mike says

    A portion of my restricted stock vested and my employeer sold shares to pay the taxes. The remaining shared are transferred into my e-trade account. My w-2 included the sold to cover the stock but does not include the value of the remaning stock. Do I need to report the remaining stock as income?

    Thanks,
    Mike

  67. Harry Sit says

    Lisa – You should report each lot separately.

    Mike – Double check your W-2. It should include the value of the vested shares as income and the value of the sold shares as tax withholding. If you are sure it’s wrong, contact your employer’s payroll department.

  68. mpub says

    Thank you for your information. It is very helpful and easy to understand

    I have 1 question for you on the sample of SELL to COVER

    since you have 59 shares left for future sellable, what happen if you sell 20 shares for your own use out of 59 shares on the same year with 41 shares (sell to cover tax)

    how do you report on turbo tax premier (turbo tax suggested I use premier version instead of deluxe)?

    I entered as follow:
    100 shares vested
    41 shares sell to cover tax (E-trade sold 41 shares on separate transactions- 39 shares and 2 shares on 1099B)
    sold additional 20 shares on the same year for extra spending.

    I entered 20 shares vested and sold 20 shares but turbo tax increase my income as 20 shares * 50 as my net proceed on W-2

    please advise

    thanks

  69. Susan says

    Thank you very much for the tips. It is very helpful.
    My situation is a little bit more complicated. I had 500 shares of WYE vested at 42.1 on 4/27/2009, because of acquisition by PFE, I was tendered $33 plus 0.985 shares of PFE valued at $17.66 for each shares of WYE on 10/16/2009. I am still holding PFE shares. How do I report my tax return using Turbo Tax? Thanks in advance for your advice.

  70. VR says

    Thank you very much for all your tips – I really learnt a lot. Here is my situation:

    89 shares vested on 05/27/2007
    24 shares were withheld by my company and sold on the same day for taxes
    65 shares were deposited into my e-trade account
    my company reported both income and taxes on the W2
    my company did not use the broker for the withheld shares
    i did not sell any of these shares in 2007 so, i just reported what was on W2 in 2008 tax year
    i did not report the withheld share sale by my company – am i in violation of something?

    i sold the 65 shares on two different days in 2009
    30 on 10/27/2009
    35 on 11/04/2009

    All above examples are about selling all shares in one lot the same they vested.
    How do I report this sale in 2010 using turbo tax since they are nearly 3 years later and in multiple sales?
    Do I need to report the withheld shares also – if so how since 2 years have past?

    Any help will be much appreciated.

  71. Cathy J. says

    Hi. I’m so confused. My husband received stock from his employer — they are calling it an award, “Employee Free Shares Plan.” Each year, depending on how business does, they give an award, half in cash, paid through his paycheck, and half in shares of their Company stock. (Not sure if it matters, but it is in pounds converted to USD when we sold shares.) In 2009, he sold his shares that were given to him in 2008 and in 2009 (so I’m supposed to split into long and short-term if I understand correctly from all my reading). He received a 1099-DIV, which was just dividends, so that was easy. Also received a 1099-B. On the 1099′s, the account is referred to as “Restricted Stock Plan Account.” I’m using Turbo Tax Deluxe, and it is asking me questions such as Cost Basis and dates acquired. I’ve also read here and in IRS documents about whether or not it was included on his W2 as income… I have no idea what to do. Any help you can give would be much appreciated. Can’t afford to go to tax consultant right now!!! Thanks.

  72. Harry Sit says

    VR – If your company didn’t use a broker and simply gave you fewer shares to begin with, you don’t have to report the withheld shares.

    Everyone – When your shares vest, think of it as receiving a cash bonus and buying shares with that bonus. The cash bonus is added to your income on the W-2. Your cost basis in each share is the price per share on the vesting date. When you sell your shares, you report the sale proceeds, your cost basis, and your gain or loss.

  73. Susan says

    Hi TFB – But if the RSU shares turned into shares of a different company, the acquisition company, was the transaction considered as selling of the original shares and then buying of the new acquisition company shares? Or was the transaction simply considered continuing holding of the old shares?

  74. Harry Sit says

    Susan – For your part-stock-part-cash merger, you have to take into consideration the value of the PFE shares you received on the date of the merger. Basically if the value of the PFE shares you received on the merger effective date was greater than your cost basis in your WYE shares, you carry your cost basis into the PFE shares and the cash portion is all capital gains distribution. If the value of the PFE shares was less than your cost basis in WYE shares, the excess cost basis becomes non-taxable return of capital and any additional cash on top of that is a capital gain.

    I googled “cash stock merger cost basis” and got this PDF document by Schwab as the first link. There are some examples there. If you read carefully and follow the examples with your own situation, you will get it.

  75. Poo says

    Thanks for the article.

    I think i understand it but i want to make sure i got it right and i do have a couple of questions

    Lets say i have 100 rsus which vested on april 2009 and 50 rsu vested on Nov 2009 and the value basis for both are 20$
    My company withheld taxes using shares (amt of taxes is mentioned for each of these allotments in etrade)

    example :
    100 RSUs at value bases 20$ : Taxes withheld by employer were 1000$ and 70 shares were given back to me.
    I sold the 70 shares after 15 days in april itself for say 25$, after SEC and brokerage fee i get 1729$

    When filling taxes using a software i enter 2 different entries
    1. For the 30 shares, cost and selling price = 1000$, so profit/loss = 0.
    2. for the 70 shares is it correct to fill the cost basis as whats mentioned in my W2 ? 100 * 20 = 2000$ and selling price as 1729 ?

    Now for the 50 RSU, my company say kept 20 and gave me 30 shares. I’ll file 0 as profit/loss using the taxes withheld.

    What do i do for the remaining 30? I have not sold the 30 shares in 2009 and my W2 does include 50 * 20(value basis) = 1000. I did sell them in 2010.

  76. Poo says

    :( sorry about not understanding it correctly. I tried reading it again.

    Did i get the cost basis incorrect? I think I’m confused.

    Is my cost basis 70 * 20? What about the W2 income?

  77. Poo says

    I think i get it now.

    The cash bonus of 2000 and the taxes of 1000$ are already accounted for.
    So now if i sell at a price greater than 20 i report gain else loss.

    So in case 1
    for the 70 shares i put the cost basis as 70*20 = 1400 and my selling price as 70*25-20 = 1729 and hence i have a capital gain.

    For case2
    I remember my cost basis as 30*20 and when i file my 2010 taxes i use that amt.

    Thanks a lot for this great read!!

  78. Ashley Dunham says

    This is great information. I have RSUs that vest once a year over the course of four years. My company forces “sell to cover” and does not use a broker (apparently) as I have never received a 1099-B for these transactions.

    I just filed my 2009 taxes and was not aware that I should enter anything into Schedule D since I had no short-term gain/loss on the transaction and all income and tax withholding information was already included on my W-2. Since the event creates no unreported tax implications, is this really an issue? Do I need to go back and amend my return to account for the zero gain/loss transaction? I hope not.

    Thanks.

  79. Harry Sit says

    Ashley – If your company doesn’t use a broker and you have zero gain or loss, I think you will be OK with not entering anything.

  80. Ashley Dunham says

    Thanks, TFB. In the future, I will do as you suggest and report the zero gain/loss transaction for sake of completeness. I just wish I had found your site sooner. Great info!

  81. Anton says

    I have a question for ‘Sell to Cover’ case:

    Since the company already withholding some of my RSU stock for tax purpose (for example, I have 100 shared vested, but only getting 60 shares, 40 shares are withhold for tax ), why they still report the total vested share value in W2 accounted for tax again?

    Would this causing paying *double* tax?

    1) the 40 shares value witholding when the stock is vested
    and
    2) the reported RSU value report in W2 as wages

    Please clarify! thanks!

  82. Harry Sit says

    Anton – Think when your company pays you a $1,000 cash bonus and withholds $400 for taxes. What is reported on your W-2 for that bonus? $1,000. It will not cause you to pay *double* tax because the $400 withheld is also reported on W-2. It’s the same concept when your company pays you the bonus in shares instead of in cash.

  83. Anton says

    TFB – Thanks for your explanation! So you mean once the RSU got vested, they will report the value of them as wage in W2, and also at the same time put the withholding tax in W2 (or in my pay stub) as well?

  84. Cathy J. says

    Still not sure if I’m getting this right. Employer issued stock award (based on company’s performance prior year) on 3/31/08 and 3/31/09. Employer paid full value at time of award via paycheck and was taxed fully at that time on entire amount. Half of the award was given as cash compensation, and the other half was used to purchase shares of company stock, which was done by a broker, and the company put into an account under our name. Stock was fully vested when given. If I understand you correctly, the cost basis would be the price of stock on the date it was granted (3/31 each year). Let’s say full award was $500, which was fully taxed via paycheck; $250 was “cash” and $250 was used to buy company stock through broker, in our name, fully vested on 3/31. Would cost basis be the $250 value of stock purchased? (If so, would do this for value given each year…) We then sold all shares from 2008 and 2009 in 2009. Would I then take the sale price (split by how many shares given each year times their value at time of sale), minus/plus the cost basis, which would be determined as capital gain or loss?? 1099′s refer to this as Restructed Stock, but it was fully vested when given and the “restricted” part is confusing and doesn’t seem to fit exactly into anything I’ve read. Please advise. Thanks.

  85. deepesh says

    TFB,
    On my W2, RSU is shown in box 12c with code V as total amount vested and I received a letter from broker showing the qty of stocks withheld for taxes and broke down in fed, state, soc, and medicare. Is this same as sell to cover and I should show zero gain/loss on sch D? Is RSU same as non-statutory stock option?

    deepesh

  86. Harry Sit says

    deepesh – RSU is not the same as non-statutory stock option. Code V in W-2 box 12c is for non-statutory stock options.

  87. Cathy J. says

    TFB, for some reason you don’t answer my posts — I’m sorry if my questions don’t make sense to you. I’m really trying to understand all of this. I don’t know what to call it (RS, RSU ESO, or whatever, and no one I’ve asked seems to get it). All I know is that it’s referred to as an incentive award of half stock/half cash, and the entire amount shows up on paycheck and is taxed; half the company transfers to a broker who buys company stock in our name, and then it’s up to us what we do with it. The 1099-B says Restriced Stock Plan Account on top. I have read all the definitions of stock options, and none simply say that it is given in this way. They talk about vesting, etc,, but we wouldn’t have received award if we weren’t vested. You mention 3 choices (same day, sell to cover, cash transfer) — we weren’t given a choice so I don’t know how to categorize. It seems like it might be considered same day, but I have no idea. In Turbo Tax Deluxe, it asks questions, and confuses me further. Seems like I shouldn’t call it anything to do with an employee stock option, just treat it as if we bought stock ourselves, use cost basis as amount company gave us (bought for us through broker) to buy their stock, and then whatever date we sell would determine short or long-term sale. In our case, it would include both, and Turbo Tax wants me to split it. If I split it, then the numbers that appear on 1099-B won’t be identical to what I input, so that is really where I’m totally confused. I don’t know how to make numbers match since there are dividends which were reinvested and fees, all of which won’t show on my 1099-B. Please answer my questions. Even if I’m an idiot, please just let me know that you can’t help me because I don’t know enough on subject… thanks.

  88. Cathy J. says

    P.S. Turbo Tax says to treat as two different sales and split into how many shares were bought (44 first time 81 second time), but they were all sold same time (130.0677 shares) — so if I do that, none will equal amount on 1099-B, if that makes any sense at all. Sorry I’m so confused.

  89. Harry Sit says

    Cathy – I didn’t answer your question because I don’t know enough about it. From what you described, it does not sound like a typical RSU program. So the company gives you a sum of money, let’s call it $10,000. It’s just like a cash bonus. It’s taxed. Where does the tax withholding come from? Presumably from the cash portion? So they send $5,000 to the broker to buy shares and you end up with the shares plus ($5,000 minus tax withholding) in cash? If that’s the case, it has little to do RSU. It’s just straight buy-shares-with-cash.

    Your basis in these shares are the total cash you spent on buying the shares plus reinvested dividends. You have to separate the lots into short-term and long-term. List all your purchases and dividend reinvestment by date, # of shares, $$.

    xx/xx/xx bought 44 shares with $??
    xx/xx/xx bought ?? shares with dividend of $??
    xx/xx/xx bought 81 shares with $??
    xx/xx/xx sold 130.0677 shares for $?? (1099-B)

    Draw a line at the one-year from date-of-sale mark. Allocate your sales proceeds proportionally to the number of shares. Holding period shorter than 1 year is short-term. Longer than 1 year is long term.

  90. deepesh says

    If RSU is not same as non-statutory stock option then I don’t know why the RSU amount is shown in box 12c under Code V on my W2. I know it is RSU b/c broker’s statement says that and that is what I got from my company.

    What do you show on ur return, non-statutory stock option or RSU? I used RSU sell to cover method on my tax return.

  91. Harry Sit says

    deepesh – I don’t know why your employer included RSU vesting amount in W-2 box 12C. My employer didn’t. The amount is just in box 1. If you are sure it’s RSU, then it is. Whether you have zero gain/loss for your sell-to-cover depends on at what price you sold the shares and whether you paid any commission or fees when you sold.

  92. Paul W says

    TFB, I filed before reading the posts. My employer did a sell-to-cover.
    There is no 1099B entry for this and the vested amt is on W2.
    I didn’t put this on Sch-D because there is no 1099B and I thought employer did the sale.

    Would IRS know this and consider this my sale?
    Should I be concerned about this now that the tax has already been sent out.

  93. misshippy says

    RSU question–Sell to Cover– If the company did not sell enough shares to cover the taxes then finds the error what happens now? Do I pay in check or do they deduct my paycheck?

  94. Harry Sit says

    misshippy – The withholding is just an estimate, not any different from the withholding on your salary. If the withholding is insufficient, you will have to make up the difference at tax filing time. You may owe underpayment penalty and interest as well if the withholding is drastically insufficient. If the company wants to withhold more now, ask them how they will do it. They will likely deduct your paycheck.

  95. RC says

    Maybe a dumb question:

    Jan 1, 2010 — granted RSU with 1-year vesting (no purchase price)

    Jan 1, 2011 — become vested and I believe 2011 W-2 will show value of RSU

    When I go to file taxes in 2012, I think I’ll be taxed at short-term rate? Does it matter whether I sell in 2011 (within 1 year) or not? If I hold on to them for at least 1 year, how do I report the sale so that I get taxed at long-term rate? Would I then get a rebate if witholding was done at short-term rate?

    Thanks.

  96. RC says

    Follow-up question — assuming I have to pay taxes at short-term rate, if I donate the stock to a 501(c), do I get to effectively avoid the tax?

  97. John says

    I had 666 shares vest on March 1st 2009. 166 were sold thru employer to cover tax withholding. I am going to sell the remaing 500 shareson March 2, 2010.

    Beyond LT cap gains, am I subject to any additional taxes?

  98. Zac says

    Hi TFB, thanks for this post. I have a question about the seemingly rare “Cash Transfer” option.

    In May 2009 my shares vested. I kept all of them and did a “cash transfer” by sending a check for the tax amount directly to my employer. A month later I sold all the shares for a very small gain. I did not include anything on my 2009 tax return except the totals from my W-2s.

    Last month the IRS sent me a bill for the tax on the “cash bonus” of the vested RSUs. Apparently they became aware of them through the broker. I’ve already paid this amount (to my employer) but the IRS doesn’t seem to be aware of it, and thinks I still owe. I believe I do owe a negligible amount for capital gains on the ultimate sale of the stock, but I’ve already paid the taxes for the “cash bonus”.

    Now that I need to clear this up, my question is, how should I have reported the cash transfer on my return in the first place?

  99. Harry Sit says

    @Zack – Nothing when you did the cash transfer, just like when you buy stocks you don’t report anything. But when you sold stocks, you should fill out a schedule D with your sales proceed and your cost basis. In this case your cost basis is the fair market value of the shares at the time of vesting. Did you fill out Schedule D in the year of the sale?

  100. Zac says

    @Kenny K – According to my employer it’s rolled into the total taxes withheld, but the specific amount I paid (transferred) to the employer is not broken out on the W-2.

  101. Chuck White says

    Great article, Quick Question-
    Sell to Cover option.
    The sale for tax is accounted for on my W-2. When I sell the remaining shares do I use choose “taxes were withheld for this sale” in turbo tax?

  102. Shane says

    TFB, I have an RSR question. I received 67 shares of Restricted Stock Rights on 3/19/2010 at 53.90 per share. Taxes were paid with stock, so I received 40 net shares. I sold the shares on 3/24/2010 for 55.78 per share for a net profit of $41.20 before $34 in fees. I am using TurboTax Deluxe. Do I need to enter a Stock sale in Cap Gain/Loss? If yes, what would I list as my purchase price? Would this be the value of the stock upon grant to me, or total value prior to the 27 share original tax?

    Thank you!

  103. Stan says

    Great article, and I think I got it all.

    But one clarification would be helpful that I think is covered in the posts but wanted to ensure. The condition is that a (1) restricted stock grant had a fair market value the same price as the taxable compensation, (2) appropriate taxes were deducted at time, and (3) there is no broker or other fee.

    My question, in this type of case, is there any purpose or requirement to include such on a Schedule D since there are no tax implications that warrant filing a Schedule D?

  104. Joe M says

    Thanks for the article TFB. I sold several RSU’s last year, some for long term gains and some for short term gains. The article really clears up how to report this on my taxes. I was audited a couple of years ago because the company only showed the total value of the sale, not the cost basis, so it made it look like a lot more money.

    I have a question about reporting the sale of options. As an example, one of my awards was for 150 shares at $16.88. I exercised and sold in December at $24.20. So, I have a short term gain of $1,098. However, taxes were withheld at the time of the sale, and the gain shows up on my W2. If I show the sale and cost basis on my tax form, it’s going to look like I made this money 2x. I assume I have to report it, but I’m not sure how. Thanks.

  105. C.L. Taylor says

    So my husband got a job and his employer gave him, apparently, some of these. so I get a letter in the mail saying $$ are reported on the w2 yadda yadda. TaxCut / H&R Block doesn’t even have a “help” search result when putting in RSU or the word restricted. The letter only says 1099. It references an account I know nothing about (account holding company I presume). This has got to be the greatest stock corporate/federal scam ever. God Forbid they just give people cost of living increases, no, they give them restricted stocks with no choices and pretend it’s income on a W2. Does that mean that they’ve done away with the 401k Roth post tax funding rules? What if the restricted stock $$ on the W2 push someone into a bracket where they can not fully fund their post tax IRA? Scam Scam Scam Scam, Scamity Scam!

  106. LTH says

    I sold lots of 105.847 and 99.153 shares of stock for gross proceeds of $6,057.75 and net proceeds of $6,018.15 on 2/5/10 for long term losses. These lots were acquired with a basis of $6,367.21 and $6,627.75 respectively. Then on 2/23, I had two lots of 55 and 175 shares of RSU’s of the same stock vest with values of $1,816.65 and $5,780.25 respectively. On 2/26 my company sold 24 and 70 shares for $774.58 and $2,277.52 respectively to cover the RSU’s taxes. Is it a wash sale and how do I handle it, if it is? What are the bases for the 24 and 70 shares sold and the basis for the remaining 31 and 105 shares? What do I put into Quicken this year?

  107. Harry Sit says

    @Stan – The case you described is called “net issuance.” I will add it to the post shortly. In net issuance, you never see the sale. You were promised 100 shares but you only receive 60 shares upon vesting. If you do an entry on Schedule D, it’s going to be zero anyway. So you don’t have to do anything. Just make a note of the price for your 60 shares. That’s your basis. When you sell your 60 shares later, the price difference will be your capital gain or loss.

  108. Karen says

    Getting involved with my taxes already and was reading your comments from this and prior years. My only comment about RSU and Turbo Tax is that TurboTax2010 does fine when you have vested and sold in the same year. It does not recognize a vested stock that you sell years later that you were taxed on your w2 for the “gift” or the “price” that day. The difference of course is capital gains but it wants to treat it as compensation. If you have been holding onto shares of a stock given to you years ago… you don’t want to be taxed twice. You think you can simply treat the sale as a regular stock sale and it prevents you from doing so because it asks you how you obtained the stock. The way around this is to say the “price” of the stock was what the price was the day you were released the stock. That was the price of couse that was used to compute your earnings which appeared in your w2 years ago..

    Does this make sense? Otherwise TurboTax2010 wants to treat the cost basis as compensation and you were already taxed on that .. years ago…

  109. Jen says

    Question that I may be overthinking…In early 2010 my husband was awarded a stock equity grant of 1,000 shares to be vested over the next 4 years. In June 2010, his company was sold and all unvested shares were vested and paid in cash through his employer. The income from the sale of the stock was reported on his W2, but we did not recieve a 1099 and one was not produced. Do we just report this as W2 income when completing our taxes? Do we have to complete a schedule D?

  110. Tom says

    I was awarded 500 RSU share this year, but my company withheld 125 shares to cover the tax situation. Do I have to claim the other 375 shares on Schedule D or worry about AMT ?

  111. Harold says

    TFB, thank you for this article. My shares were taxed as described in the Net Issuance section above. The W2 that my company sent included the income for the total shares issued in box 1, but the shares withheld for taxes were not included in boxes 2,4,or 6. Am I right in thinking that my W2 in inaccurate and I should ask for an amended document from my employer?

    Thank you in advance for your time and response.

  112. Harry Sit says

    @Harold – How do you know they are not included in boxes 2, 4, and 6? Get all your paystubs during the year. You may find that one of them has a higher withholding amount. Or you may see the YTD number jumped magically as if you had a hidden paycheck.

  113. gautham says

    I like the deconstructed portfolio example, very eloquent. However, you didn’t directly answer whether this is a double taxation. It appears to be, since the bonus portion is taxed on the W-2 (which is why the company does the sell to cover with the stock, to fund the tax from this bonus) and then separately your gain on sale of your investment is taxed on the Sched D.

    All in all, the company must fund the tax associated with the bonus they pay you by selling to cover a portion of the shares the award you, then you must pay tax on the ordinary income of the “bonus” and the gain on sale of the share grant. That feels like triple taxation to me! Oh well, at least it’s a bonus :)

  114. Harold says

    TFB – I should have included an explanation for that. I left the firm in 2008 and had no income from them other than the vested RSU shares. So, the RSU amounts were the only ones on the W2. The company tells me that the tax was reported on a UK equivalent (I was an expat in London at the time the RSUs were granted, but was back in the US when they vested). They are looking into it.
    Thanks for your comments.

  115. craig says

    If you see the difference between the market price and the option price reported on your W2 as a code V in box 12. DOES THAT MEAN THE $406 (TAXES) was added to my federal withholding on my W2? I did not get a 1099B for this sale transaction but see the $406 as a tax withheld for this sale on my YTD summary.

  116. bit says

    hi, my husband exercised some stocks that he received from his employer..
    stock :855
    bought for : $25.42
    sold for: $27.29
    gain: $ 1596
    when we sold stock, the broker cut federal taxe, fica tax1, fica tax2 and state tax and we received net amount for $933.90..also $1596 was reported on my husband’s W2 form under line 12. my question is do we have to pay taxes on $933.90 again. if not, how and where do i put that information when i file taxes. i am using taxslayer and its not working.. please help

  117. Alex says

    I received and sold RSUs this year. My W-2 includes the income received, but did not check off box 12c – “V” on the W-2. I also received a 1099-B from ComputerShare where the shares were sold. I’m not clear on how to report this since I already paid the taxes on it. I’m using TurboTax

  118. Tyler says

    Great info. Thanks so much. Want to make sure I am calculating mine right in Turbo Tax.
    Received RSU’s Jan/2009
    Jan/2010, 112 vested at $37.66
    44 held for taxes
    May 2010, sold remaining 68 at 47.22
    1099B shows $3170 (proceeds minus commission)

    So in TurboTax I have:
    $3170 as net proceeds
    $4217 as cost basis (112 x $37.66, also shows this amount on W2)
    Date Acquired (not sure if I put date I received award or date vested. Maybe it doesnt make a differnce)

    With this info, I am showing a loss of $1047. Is that right. Even though stock went up approx $10 per share? Or is this how it works because of the taxes taken out? Any help would be appreciated to make sure I am entering this right.

    Thanks

    Tyler

  119. Harry Sit says

    @Tyler – You know something is wrong when the stock went up and you show a loss. You sold 68 shares. You can only use the basis for those 68 shares ($37.66 * 68 = ?), not 112 shares. Date acquired is the date vested. And don’t check that box.

  120. Tyler says

    Thanks TFB. I was thinking the exact same thing. So that makes sense to only take into account the 68. Thanks again for taking the time to respond. I am truly impressed.

  121. Achiu says

    What is the tax implication for the tax withholding on stock compensation paid by the employer? The stock compensation amount e.g. $54K is already reported in box 1 on W2 as compensation. Thanks in advance for your help.

  122. Jeremy says

    Great page. Thank you for this.
    TFB, if there is no 1099-B for the sale, how is a “sell to cover” different from a “net issuance”? My company ‘traded’ the shares at the release to cover withholding (bought them back without a broker) and gave me no 1099-B. It sounds a lot like the “net issuance” where I do nothing on Schedule D. But in the case of #13 where shares were “withheld” (I am not sure what that means), you advised filing a Schedule D.
    Even if I think I have a “net issuance” should I treat as “sell to cover” and put a 0-gain sale on my Schedule D? I’m not sure what the IRS would think of reporting a sale that was not reported to them….

  123. Harry Sit says

    @Jeremy – I used to recommend doing a zero entry for completeness. That way all shares are accounted for. I now believe not doing anything will be OK too and it’s simpler that way. I added net issuance as a special case for sell-to-cover: no broker, no 1099-B, price is exactly the same as the price used for vesting. I’ve done it both ways in different years on my own tax returns: with a zero gain/loss entry; and no entry at all for the shares used for tax withholding. IRS accepted my returns without any issues.

  124. Harry Sit says

    @Achiu – The withholding is also included in W-2, in boxes 2, 4, and 6. If the withholding isn’t enough, you will pay extra on your tax return based on the Box 1 number and your other income and deductions. If the withholding is too much, you get the difference back.

  125. Terry says

    Ok very confused but I am sure you answered above. i am trying to do my taxes. I sold some shares of restricted stock when it vested. My employer withheld shares to cover taxes so instead of receiving 50 shares that I sold I actually received money for 35. I pulled a 1099 off the smith Barney web site which showed the amount received (the 35) and said 0 for taxes paid. Since my employer did that is that reflected in my over-all W-2 as income with taxes already deducted? Am I making sense?

  126. Peter says

    Thanks TFB… greatest blog I have come across explaining RSU’s.

    I have a question. just wanted to confirm that what i doing is correct.

    I have 167 shares vested (in 3/01/2008). Employer sells 72 shares for tax purposes so I have 95 remaining.

    I sold the remaining 95 on 10/26/2010.

    So in the capital gain while filing taxes I just mention
    xxx stock sold
    date sold: 10/26/2010
    sales proceeds: 2,736.00 (the stock value 28.8001 x 95 stocks)
    date acquired: 03/01/2008 (vest date)
    Cost or other basis: 2,504.2 (the stock value at vesting 26.36 x 95 stocks)
    capital gain: $232.00 ( 2,736.00-2,504)

    is this right? do I need to do something else?
    thank you

  127. Veronika says

    TFB,

    I have a location issue with my RSUs. I was awarded them in 2008 in the UK, then left the co.; this year I sold the vested shares on vesting date (net issuance). I have a 1099B for the net proceeds, but no W2 for the withheld shares, since I now live in the US and work for a different company.
    Can I report the withheld shares by ticking the requisite box on TurboTax and entering it manually? The result is a full refund, because I only worked for 3 months last year. Seems to good to be true …

    Thanks, Veronika

  128. kim nguyen says

    Received 40 share RSU’s 02/2006

    02/2010 sold remaining 20 share at 24.87
    Gain 498.20 reported to W2

    How to enter
    1) Enter vesting (or release) information
    2) Total shares vested/Released
    3) Share withheld (traded) to pay taxed.

  129. Dave says

    My company granted me a couple of bonuses as RSUs over the past 5 years. The company merged with another in mid-2010 and the shares were accelerated to vesting and the proceeds included in a separate paycheck. The proceeds and withholding show up in my W-2. I also got a 1099-B from the broker with:

    Box 2: (amount of proceeds)
    Box 4: (Income Tax Withheld)

    I’m guessing from previous responses that I might be able to not file a Schedule D. I’m just not sure what the IRS will do with the 1099-B info submitted by the broker.

    Thanks!

  130. Riz says

    TFB,
    My scenario is kinda similar to Peter(144)…..Do you have to enter the capital gain/loss info in Schedule D?…..Does it need to be entered in the same spreadsheet where one enters the stock trades Buy/Sell info? .If not where exactly do I have to enter it.

    Thanks

  131. G says

    TFB,

    I have a same day cash sale RSU. Turbo Tax Premier is subtracting the value of shares with held to pay taxes from my cost basis (in my case reported W2 income).

    Details (Same Day Cash Sale)
    RSU Grant: 166 Shares vested on 8/17/09 @ $10.86
    Shares held for taxes: 71
    W2 Income: 166 * $10.86 = $1802.76

    I assume my cost basis is $1802.76, ie what is on my W2.
    However, TT is saying my cost basis is $1031.70, or $1802.76 – (71*$10.86).

    So it looks like TT (using easy guide) is subtracting the value of taxes paid (ie 71 shares @ $10.86) from my total cost basis. Is this correct? From all of the examples, I should not have to subtract this and my cost basis should just be the W2 income reported.

    Thanks!
    G

  132. Riz says

    TFB,
    In reference to my question(150), is there a specific/exclusive column on the W-2 where witholding taxes are exclusively reported/specified? If not which column has that info?

    Thanks in advance.

  133. Harry Sit says

    @G – See comment #137.

    @Riz – No specific columns. They are lumped together with other withholding from your salary: federal, state, FICA.

    To all who want me to work their TurboTax issues: I will do my best to help you, but I can’t be doing free tech support for TurboTax. If you need one-on-one help, deposit what you think the help is worth in my tip jar.

  134. G says

    Thanks TFB, that post made it clear. My cost basis is only on the 95 shares sold, or 95 * $10.86 = $1031.70, exactly what TT reports.

    Now I just have to figure out some non-qual Stock Appreciation Rights (SARs). I wish you had a blog on that :-)

    Thanks!
    G

  135. Deepak says

    Great article! Got a few questions though.
    Background:

    Release history for 12-SEP-2010 shows “Released Quantity”=104 and “Net shares released”=62 at FMV 10.8150 Per share

    The W-2 Box-12 says V-Nonstatutory stock options 1,124.76 (confirmed w/ payroll this is for RSU)

    Also recd 1099-B from Broker, showing trade date 13-SEP-2010, shares sold 42 at Price 11.1267 and Gross proceeds (less fee) of $442.31

    My confusion is regd Cost Basis. Should it be 1,124.76 (as in W-2) or $454.23 (42*10.8150) ?

    Does the below look correct (if I used 42 * 10.8150 as Cost Basis) for Sch-D?

    Shares Sold Net Proceeds Sale Date Cost Basis Gain/Loss
    42 442.31 9/13/2010 454.23 -11.92

  136. AT says

    I don’t see any response to TaxBozo’s question on 2/25/10 about the situation where the shares that were sold to cover are allocated with a cost basis FIFO, not from the lot that just vested.

    To complicate matters further, I just followed the method outlined on this site last year, when I had a lot fewer/less complicated RSU transactions. So now if I switch to FIFO, everything’s all messed up. (Of course, if I don’t, then I’d have to go through and calculate what lots the RSUs I sold myself came from and all my records would conflict with my brokerage’s records.)

    I am surprised more people haven’t encountered this and would be interested in any insight you have.

    (My current plan is to correct everything to FIFO now and not think about last year unless I get audited.)

  137. BFL says

    My question relates to wash sale rules. On 2/20/09 we sold 504 shares of stock at a loss (RSU’s from 2006) and on 3/4/09 we sold 382 shares of stock (RSU’s from 2007) also at a loss. However, 547 new shares were vested through the RSU program on 2/15/09 and 36 shares on 3/6/09. I did not recognize the losses in 2009, because I thought the wash sale rules disallowed them. My questions are:
    1)Which stock basis is increased due to the disallowed losses? Do I add it all to the 547 shares received 2/15/09 (chronological) or do I prorate between the 547 and the 36? Does it matter that the number of shares I acquired is less than the number of shares I sold at a loss?
    2)On 11/22/10, we sold the 547 shares acquired 2/15/09. The broker statement shows a gain, because it does not reflect an increased basis due to the wash sale disallowed loss. When Turbo Tax asks me for the basis of the shares I sold, do I just enter the basis including the disallowed loss, even though that won’t agree to the 1099 from the broker?
    3)If I increase the basis of the 547 shares for the disallowed loss, it will make the 11/22/10 sale of stock a loss rather than a gain. I got new shares vested 11/15/10. So under the wash sale rules, would I not recognize the loss on the 11/22/10 sale, but increase the basis of the stock received 11/15/10?
    Any help would be appreciated. Is there separate software just to handle wash sales, because Turbo Tax Deluxe doesn’t seem to give extensive guidance on the subject.

  138. TFB-Reader says

    Hello, great post and comments I should say firstly.

    I wanted to ask about my situation which seems a bit more peculiar:

    I had a grant of 50 RSUs on 05/06/2008. They vested on 05/06/2009. At that time they were automatically “sold to cover”, going down to 28 (22 sold). I saw the withheld-for-tax money, as well as the “earnings” (FMV*50) show up on my company’s gross/net pay 2009 report (however it’s not clear if this money is in the 2009 W-2 – arggg, why is it all lumped together? it’s so easy to print a breakdown in this day and age of computers…). However, I didn’t touch said 28 RSUs until 12/31/2010, at which time I sold them, and by which time I had left the company (after vest).

    How do I calculate the cost basis on the 2010 return? Do I have to report that 22*FMV was withheld for taxes again for 2010? I’m guessing no.

    And another question: as I was going through my 2009 W-2, my calculations showed that it (the W-2) reported less than I got in 2009 (it seems to not include the last lump payment which included unused vacation time). Is it possible? I quadruple-checked my math (and I’m good with math). I was never sent an updated W-2. It’s a big company, I don’t think they’d make mistakes on their W-2s…

    Thanks in advance and keep up the good work!

  139. TFB-Reader says

    A quick follow up to my original question:

    I guess these shares are NOT RSUs anymore after the vesting date. Therefore I would not enter them into my tax software as RSUs, but as normal stocks. Does this make sense?

    As for the cost basis, someone explained it like this:
    ” let’s say you were awarded 150 shares valued at $20/sh
    - your company reports $3000 of income for you (in addition to salary, bonuses, etc.)
    - the stock program administrator grabbed 60 of the shares to pay taxes assessed at a fairly high rate, so your company has also reported $1200 of federal withholding, social security, medicare, state tax, etc.)
    - You now own 90 shares that “cost” $3000, so your basis is ~$32/sh. which was certainly more than market value on purchase date since RSUs are issues at fair market value or $20.
    - if you haven’t sold any shares, TT shouldn’t report anything.
    - If you sold some of the shares for more than $32, then you’d have a capital gain to report, a nice thing in this day and age, but unlikely in 2008 when most stocks went down…not up by 40%
    - if you sold shares for less than $32, you might generate a capital loss.”

    Is it correct to assume the basis is:

    A) 90 * $3000/90 = $3000
    or
    B) 90 * $20 = $1800

    I would say B, but the comment above hints to A (“basis is ~$32/sh. which was certainly more than market value on purchase date”, FMV=$20).

    Thanks in advance

  140. Harry Sit says

    @TFB-Reader – Answer is B. Cost basis is tied to the number of shares. Your cost basis for the 150 shares is $3,000. $1,200 of that went with the 60 shares to the company. They go together. You are left with $1,800 of basis and 90 shares.

  141. Mark says

    Great information about RSUs and the tax treatment thereof! My question stems from the way the value of the stock I received is reported on my W-2. The value of the shares I received (gross value before “sell to cover”) was reported as part of my “gross pay” and not part of my reported wages.
    I think I need to add the total value of my RSUs into my reported wages. Can you verify?
    Thanks in advance.
    Mark

  142. Harry Sit says

    @Mark – Do you mean W-2 Box 1 when you say “reported wages”? Yes the value of vested RSUs should be in Box 1. However, the Box 1 number is after 401k and other pretax deductions. It may give you the impression it didn’t include the RSUs but the difference between Box 1 and gross pay is really 401k and other pretax deductions, not the value of RSUs.

  143. Mark says

    TFB-thanks for your response.

    You are right! In my case the value of my RSUs equals my 401k contributions +life insurance premiums+ Sec. 125 contributions almost to the penny:)

  144. LAB says

    TFB -
    Been reading through all of your articles and comments … I am on the Employer side, small company, trying to figure out how to represent all of this in our books and on the Employee’s W-2s. We use Intuit payroll so I’ll have to set up something there but can you walk me through conceptually?
    We granted restricted stock 1,000 shares several years ago but they will vest this year @ $10/share.
    I report $10,000 extra income on W-2.
    Additional tax burden created will include Fed/State/SS/Med so, “sale to cover” would include those totals, right?
    Help!

  145. Harry Sit says

    @LAB – Sorry I have zero experience on the employer side. From my observation as an employee, sell-to-cover includes necessary amount for federal, state, SS, Medicare, and state-mandated disability program (if your state has one), just like a one-time cash bonus except no deduction for 401k contributions.

  146. JCA says

    Still a little confused. My employer issues RSUs to me and seems to use the “Net Issuance” method to cover the taxes. I can infer this because my 1099-B does not have anything related to the RSUs. Every April, I get a chunk of RSUs, let’s say 300. About 1/3 are sold to cover taxes, say 100 shares. So to me, I am just getting issued 200 shares of stock. The value of 300 shares is reported as income, and the value of 100 shares is withheld as tax. OK all that is fine. Now within 30 days of the RSU issue, let’s say I sell a chunk of totally unrelated shares in the same company, at a loss. Let’s say I sell 200 shares at $10, and $5 of that is loss, so $1000 of loss. Let’s say the RSUs that were issued to me were at $10, or a value of $2000. According to IRS Pub550, wash rules are incurred when I “Acquire substantially identical stock or securities in a fully taxable trade” within 30 days of the sale. Does my company’s issuance of RSUs to me count as the “acquire” statement? If so, do wash rules apply? If so, when do I get to claim the loss?

  147. Kbiz says

    In reviewing a paycheck from a client, it shows Restricted Stock gross income as $371,000. An after-tax deduction called “Restricted Stock Offset” equals $235,000. Does this $235k represent the tax w/held on the transaction? Not clear how it figures into the calculation.

  148. Harry Sit says

    @Kbiz – I will tell you if you share some of the money your client pays you. Charging your client money for an answer you get from me for free isn’t fair.

  149. Kbiz says

    I am not charging the client for anything – not preparing a tax return nor providing a fee for service. Was just looking for clarification…no problem for not answering…

    And, thanks, you do have an informational site…

  150. zev says

    Thank you very much for your informative article. I just have one question. How does the IRS value restricted stock paid to non-employees? i was just paid in restricted stock, and im not sure how much i need to pay tax on. The amount the stock was when recieved, or what the stock is at now. (even though at this point i cant sell it)

  151. AK1 says

    Thanks for your informative article. I have a question (apologies in advance if it’s super basic). In relation to RSUs, when are shares deducted from the number of available shares — are the shares deducted when the RSU is granted, or at the time the RSU vests?

    Thanks much!

  152. CDS says

    Great website, very helpful. I’ve found myself in the camp of needing to answer an IRS audit due to not properly filing a Schedule D for a sale. Quick cost basis question for RSUs (in a net issuance situation. Your guidance indicates using the closing price of the stock on the day it vests for the cost basis of the remaining shares after net issuance. I have a date of 5/17, and using the closing price and number of shares, calculate a cost basis of 3152.50. On the vest date, the company issued a paycheck stub, with gross amount, taxes paid, and a net income amount reported as “RSU” (also included in W-2 income), which is different than my calculated cost basis. Must I use the “RSU” income amount as cost basis, or is my calculated cost basis using closing price (which is slightly higher) fine?

  153. CDS says

    I determined the reason for the difference, and I’m not sure the company’s tax treatment of reported income is correct. The company sells whole shares, and sells fewer than needed, creating a tax “liablility”. For instance, for one RSU vest event, they sold two shares (out of 6), getting $96 in proceeds, with a tax liability of $102. They then reduce the reported W-2 RSU income by the $6 difference, so instead of reporting income/cost basis as (remaining shares * sales price), they are reporting (remaining shares * sales price) – “tax liability”. I can’t quite figure out what’s going on with this $6 tax liability, but I don’t think it belongs in the cost basis of the remaining shares.

  154. John says

    My broker website (MorganStanley SmithBarney) shows a $4000 cost basis for 50 restricted shares that I sold to cover. These restricted shares are part of an employee restricted share award. Based on proceeds of about $1500 and the cost basis of $4000, TurboTax Deluxe reported a Gain/(Loss) of -2500. I decided to upgrade to Turbotax Premium for the upgraded stock reporting features and it reports the Cost Basis as zero. When I click on the explanation, I get the following “Your cost basis in stock options you receive through a restricted stock grant is the amount you paid for the stock (this is often zero) plus the amount of compensation income you receive”. Why the discrepancy?

    • Harry Sit says

      Neither makes sense. What was the price *per share* at the time of vesting and at the time you sold those 50 shares?

  155. John says

    There is a “FMV (per share)” value of 30.53 and a “Sale Price” of 30.9571. I think you are asking for the FMV price, correct? And when you say “at the time of vesting”, it is not clear to me when it vested, but I think it was the “release date”. MorganStanley reports a Release History table with “shares vested pending release” and shows “release dates”. So on the release date of April 2011, 50 shares were sold. When I click details, it tells me that the FMV (per share) was 30.53 and “sale price” was 30.9571

    I do see now that the $4000 cost basis was for all of the shares that were released, not just the 50 I sold. So, in turbotax, I chose a basic stock sale (ignoring the restricted stock sale option) and indicated the net proceeds(sale proceeds – fees/commissions) from my 1099-B and the cost basis (50*30.53). The difference between the 2 came out to a loss of $10.

    According to a turbotax agent, the restricted stock option in turbotax is for stocks that have not yet vested. To me this seems real confusing.

  156. Harry Sit says

    @John – Yes, vesting and release are the same: when the shares vest, they are released to you. You did it right this time. When you sell the remaining shares, use $30.53 per share as your cost basis.

  157. SGK says

    Great article on RSU’s.
    Not sure if this was answered above..

    My question is, if we did not get a 1099-B from my broker, can we assume that it is “Net issuance” and not a “Sell to Cover”?
    The amount (total value of the vested RSU’s) is included in my W2 and the remaining shares deposited with my broker.

    thanks for the help.

  158. oldiemotors says

    Man this is confusing. On net issuance, I can’t figure out if my cost basis should be calculated by multiplying the FMV at the time of vesting by the number of shares released, or by the number of shares withheld to cover taxes, or by the number of shares I ended up actually receiving.

  159. Donna says

    If I enter my RSU’s sold to cover taxes as RSUs in TT, I end up paying a heck of a lot more tax than if I call them a stock sale. Why would this be? I haven’t completed the TT return – just finished up the 1099B income section…perhaps if I continue with TT this difference in tax will be negated by other entries later on that affect the RSUs? Note: My 1099B does not indicate RSUs anywhere on it so technically I think I can call it a stock sale if that results in lower taxes. Also note that the RSUs that vested were included in line 1 of my W2 but not noted elsewhere as vested RSUs. I’m just trying to figure out why calling them “stock sale” instead of “RSUs” results in much lower taxes? Am I doing something wrong?

  160. Rohit says

    same question as Donna.
    RSU vested, tax withhold and received deducted shares, income and tax reported on w-2, no 1099-B reporting for them. I understand there is no gain/loss report, as i didn’t sell them.
    But, do i need to report this transaction in my return?
    taxact doesn’t have anything for it?

  161. Harry Sit says

    Rohit – If it’s net issuance (no 1099-B), you don’t do anything until you sell. When you sell, use the price per share used to calculate your income on W-2 as your cost basis.

  162. oldiemotors says

    TFB, Can you clarify how to calculate the Cost Basis for Net Issuance? I have read and re-read this post, but I can’t find an explanation or an example. Sorry, if I missed it…staring at Tax forms for extended periods of time is numbing my brain.

  163. Harry Sit says

    oldiemotors – Quoting from the post under Net Issuance.

    “You don’t have to report anything for the vesting event. Use the numbers on your W-2 as-is.

    Make a note of the closing price on the vesting date. You have to remember the date and this number until you sell the remaining shares. In our example, that’s $50 per share. If you sell the 60 shares for more than $50 per share, you will have a capital gain. If you sell them for less, you will have a capital loss. You report the capital gain or loss in the year you sell the remaining shares.”

    The $50 per share in the example is your cost basis.

  164. oldiemotors says

    TFB, thanks for the reply. I realize that $50 is the costs basis for the stock price, but TurboTax asks me to enter the costs basis for my sale. Would I enter 100x$50=$5000 as my cost basis, or 60x$50=$3000?

  165. Harry Sit says

    oldiemotors – $50 times however many shares you sold. If you sold 30 shares out of 60 shares you have, it’s $50 * 30 = $1,500. If you sold 60, it’s $50 * 60 = $3,000.

  166. oldiemotors says

    TFB – That is what I needed to know. Someone in my company’s Payroll department told me that my cost basis was based on the total shares granted (in your example that would be 100 shares). That didn’t sound right to me. Thanks.

  167. Jim Wilson says

    Hi TFB. The RSU post was very helpful and got a significant issue squared away for me. Thanks. Have a hybrid of that issue also. Have an noncovered sale of 12xx shares. The shares came from 2 ESPP lots purchased in May and June 2007, and an RSU lot released in October 2007. Company was bought in late October 2007, and the shares were converted to 6xx shares of new company. Stock then splits 2:1, giving us the 12xx shares that were then sold in Jan 2011. New 1099s don’t give basis, as we all know.
    Question is how to figure basis.
    Do I trace each lot individually (I have basis from each individual purchase) from purchase through merger and split, or should I calculate the basis for the entire lot after the merger and then split? Thanks very much.

  168. Donna says

    Slight twist on RSU issue… I was granted RSU shares and they vested 2011. ~30% were sold by my company to cover taxes. The total value of the vested shares appears on my W2 as “income” in box 1. When I use TT and report the vested shares and sale of the shares to cover taxes, I end up with a refund of $1000. If, instead, I call them a stock sale when entering the info into TT, my refund is $4000. I checked every document in my return and I can’t say for sure, but it appears that my carryover stock losses from prior years allow the gain from the RSU sale to be offset resulting in no tax due – but if I call them an RSU using TT, then there is no offset, so I pay a lot more tax. This doesn’t seem fair. And it may be an issue with how TT handles the RSUs? Shouldn’t you be able to offset any gain (whether it’s an RSU or not) to be offset by losses? Can I legally call the sale of the RSU’s a stock sale?
    Thanks for all your comments. This site has saved my sanity.

    • Harry Sit says

      Donna – See my reply on March 17. Just use stock sale. TurboTax is confusing you in the RSU section.

  169. Belinda says

    Great info & I have learned MUCH from reading so many of these posts/replies about RSUs, but I did not see the situation I have. CO issued RSU & sold some to cover taxes, but a little extra $$ was due to cover the taxes (<mkt value of 1 share) so $$ was due to the CO & was deducted from paycheck. Should the extra $$ paid for taxes be attached to the cost basis of the shares sold to cover OR can I add it to the cost basis of the remaining shares issued that are availble to sell?

    Thank you so much for clarifying this confusing topic!

  170. Harry Sit says

    Belinda – The extra bit of $$ you paid out of pocket has nothing to do with the cost basis of either the shares sold or the shares remaining. Think of it as just extra withholding from your regular paycheck. You will get it back as tax refund if it turns out you paid too much tax.

  171. Siva says

    Thanks for detailed explanation . Lets say company granted 400 RSU to be vested over 4 years .
    In 1st Year I got 100 shares out of which I see only 60 (sellable ) shares in the trading account and remaining 40 were sold for covering taxes .

    If my tax bracket is at 20%. However for this RSU’s I have payed at 40% . when I file taxes for that year I should get the 20 shares price refunded to me when I file taxes. How will I claim the 20 shares amount in refund.

    Does the RSU’s mean that they are to be taxed at 40% .

  172. Siva says

    To add further I have not sold any RSU’ s in that tax year and I have not received any tax document from my brokerage account.

  173. Harry Sit says

    Siva – Nothing special to do. The 40 shares worth of withholding is already reflected on your W-2. If you paid too much, you will naturally get the difference back. Think when you get a cash bonus, which the employer is required to withhold at a higher rate. If it turns out to be too high, you get the difference back when you file your taxes.

  174. KenK says

    Hi TFB – I was issued 709 RSU shares that vested 6/1/11. From the 709 shares, 264 share were sold to cover taxes. I sold the remaining 445 (3 lots) on the same day,6/6/11. In Box 1 on my W2, I see an RSU entry of $13,825 as taxable income. My 1099 shows 445 RSUs sold at a gro proceed of about $8200. When I enter the RSU information into Turbo Tax (separating everything by lots) everything seems fine, until I get to the “Employee Stock Plan Results” page where TT comes up with $6932 and ask me if that number appears in Box 1 of the W2. My W2 shows $13,825…or twice what TT calculated. If i enter the actual amount that appears on my W2, TT throws an error stating that I can’t post anything more than their calculation.

    Have you encountered this scenario? It’s confusing to enter everything it asks for and then not have a clue how they came up with the $6932 number.

  175. Bala says

    I am US citizen, working in India and earn wages in India. My company has given me RSU’s (listed in US) and they use “Sell to Cover” option at the time of vesting. Since I do not receive any wages in US I do not have a W-2. I did not receive a 1099 from the brokerage firm as well. But I did receive the RSU release and the tax withholding details. It indicates that there is a 30.9% of tax withholding for Local tax. Now I am not sure whether the tax withholding is for US or for India. I am planning to report the “Sell to Cover” in my “Schedule D”. Please let me know if my reporting is correct. Also does 30.9% withholding looks little high and I am not sure it was paid to India or US – any comments?

  176. Bala says

    Few additional information. I understand the 30.9% is the India tax. So the RSU during vesting was taxed for India FBT. Since I did not receive any income in this do I report this vesting in my Schedule D?

  177. John says

    Ok – you may have answered this – but I am still bit confused! I had a grant of 400shares…it lapsed on 1/22/2008 – they took out 150 units to cover tax – so i have 250 units left at $16.96 a piece. Several years later, on 7/23/10 I sell them for $14.27. Since they lapsed in 2008, and i had then in shares…this is a regular stock sale…correct? Where the cost is the $16.96 a piece (plus commission) and the income is $14.27? So in this case I actually have a loss of almost $2.70 per share…is that correct? And then what is the determination in Schedule D of Short Term? I had shares lapse as late as 1/22/2010 and 3/5/2010 and sold them on 7/23/10 – are they short term because I only held them for no more than 6 months? Yes – this is from 2010! I didn’t know about your site, or what I needed to file – and the IRS sent me a nice reminder letter (and a not so nice bill!) because I didn’t provide the cost basis – I assumed the sale (which was all captured in my W-2) ws all taxed at the full amount it should as a benefit…oops!

  178. rontax says

    Using Turbotax and trying to amend a 2010 return. I have everything except for 2 questions:
    1. to verify are Grant date and Award date the same thing?
    2. What do I do if the income on one of the lots sold in 2010 was put onto a 2009 W2 rather than a 2010 (the date sold) W2. I understand that I am taxed when they are vested but when I include the income that was taxed in 2009 in Turbo Tax it tells me that it can’t be more than the other two lots that were both vested and sold in 2010. I’m sure I messed up by not selling the 2009 lot in 2009, but I held onto it until Feb 2010. I don’t want to pay tax on income that was already taxed in 2009. Do I just complete the amended return with the error in it? or should I do something else? Any suggestions would be appreciated!

  179. Shawn says

    This article and the follow-up conversations have been a wealth of information. I had an RSU vest last December. Right or wrong, I chose to pay the taxes out of pocket and keep all of the shares. I paid this to a brokerage (Merrill Lynch). Looking at my pay stub for that period, I see an entry for RSTR STK TAX OFFSET for the dollar amount of the taxes paid. This was, for some reason, added to my YTD Earnings. This doesn’t seem right to me. If the company had paid the taxed on my behalf, that would make sense, but since I paid these out of pocket, I don’t quite understand why this is being added to my earnings for the year. Am I missing something?

  180. Chris Trost says

    RSUs were granted to me in 2009 when I was a resident of Wisconsin. A year later during the 3-year vesting period, I became a resident of another state having no state income tax. The custodian withheld Wisconsin income tax on the RSU distribuiton even though I was a resident of Washington State. My question is whether it was proper to withhold Wisconsin tax due to the fact that I was a resident there when the shares were granted even though I was a resident in a different state at the time of vesting.

  181. Olive Baker says

    RE: Restricted Stock Vesting

    Please give me some advice.
    Tax dedution: Taxable as earnings?
    W2 Box: I know W2AV for inctive options stock. What W2 box for Retricted Stock Vesting?

  182. Kiran says

    Hello,
    I work for a company called “A”. they award RSUs at every focal review(every year). These RSUs vest every 3 months. I still work for the same company. I started working at this company in 2004. I moved to India office in 2011(separate entity of the same company) and although i joined there as a new employee, i get to keep the unvested RSUs and they follow the same vesting rules, and finally i had to move back to US 2012 Nov and start working at the same office again.

    I got my W2 for for 2012, where I had amount “x” as my US Income. (out of which “a” for the wages and “b” for the RSU sales). out of “b” RSU sales, some income is considered as India income and there were taxes paid in India…”b” = “India considered Income” + “income allocated to US”.

    If I hadn’t had an RSU sale, I would have taken the “US reported income” as my W2 income + filed the Foreign Earned income for the India wages(and took the foreign tax exclusion) and it would have been fine.
    but in this case my W2 has income, with a component of the income for the India with taxes paid in India.

    So I was thinking, I will just report the W2 income + India wages income and then take the India paid taxes as the foreign tax credit..(basically I am not using Foreign Tax exclusion, although I am qualified to do, just because I have income reported on W2, where for some of the amount taxes are already paid in some other country)

    Is there something wrong with the thinking here?

  183. Cass says

    So, IRS sent me an angry letter for 2011′s return, saying i owed 2.2k on my stock sales.
    I sold my rsu’s asap (blackout trading window of 3-5days, typically) and i saw on my w-2 that my income and my taxable income reflected the shares withheld at time of vest. Basically, the difference between my income and taxable income was the total proceeds from my stock sales.

    So, i amended my 2011 return. No biggie, Turbotax (desktop download, efiling was obviously closed) was really good at walking me through what to enter, and everything broke even again as expected. (How many stocks vested? On what day? How many shares were withheld to cover taxes? what was the price when it vested? what was the price when you sold? etc)

    I’m trying to amend my 2012 return, since I know I didn’t include my stock sales and I don’t want the irs hunting me down again.

    However, this time the online tool isn’t as upfront about getting answers.
    I had 65 shares vest on 02/01/2012 at $35.50. 24 were withheld immediately for taxes, and a delicious 41 shares ended up in my etrade account. after the blackout window opened, i sold them for $35 each.

    Yes, it was reported on a 1099. No, the cost basis was not included, but I can find this within my etrade account details. (Date of sale, net proceeds, and date acquired are obvious)

    However, I DID have shares withheld at vest to cover taxes. Do I need to select the “yes, taxes were withheld for this sale?” Or no, since no additional taxes were taken from my executed shares (minus the withheld ones)? No matter how I enter this number, either the IRS owes me a bazillion dollars, or I owe the government a bazillion dollars.

    Also, since this was a rsu grant “bonus”, is the cost basis $0 or is it 41x$35 for the whole kit and caboodle to show the loss/gain?

    help!

  184. Ram says

    Question:
    I received “statement of taxable income” from my employer for 166 shares which got vested on November 9th 2012. The total W-2 Income was also included in there. I didn’t place(sell or buy) any trade in 2012, so I didn’t receive any 1099 form from Etrade (I confirmed this etrade also). I paid my taxes(during vesting period) through my account instead of paying through stocks.

    Should I report this “statement of taxable income ” when I am filing tax this year? If so can I use turbo tax to do it. Any suggestions would be of great help.

  185. Bob127 says

    I work for a company that switched to stock awards as RSUs which mature over 5 years. In the last several years now that the RSUs have been in place – loyalty, respect, job security, balance of personal and work life have become miserable. But, to now leave means leaving a lot of money behind (RSU revert back if you leave or are terminated). This becomes a huge beating stick for the corporate management team. Have others seen this in your companies where RSUs are part a big of the compensation?

  186. srini says

    Thanks for wonderful post on how to report the “sell to cover” related stock sales. Initially, I was thoroughly confused on what to do as even IRS helpline was not that helpful. Luckily, found your post and successfully filed my tax returns.
    Appreciate your help for posting this article to help every one.

    Thanks
    Srini

  187. Karol says

    If I had 140 shares vest in 1st quarter and company covered and I had 87 shares left, if I sell the 87 remaining shares 6 months later are they taxed again when dispersed to me? Or is only the amount of the gain in the stock price from the date of vesting to the date of sale on the remaining 87 shares taxed on payroll?

  188. Harry says

    Karol – The latter. Only the amount of the gain in the stock price from the date of vesting to the date of sale on the remaining shares. You basically bought those shares with your after-tax cash bonus.

  189. Mike Chartier says

    Harry, great work and thanks for explaining something that I have been trying to understand for many years. A+

  190. Rob says

    Hi Harry. The RSU articles are great. I am pretty sure I understand the RSU wht mechanics but am getting tripped up when I compare to stock option activity. I have both showing on my 1099-B.

    My company take the net issuance approach on RSUs and I sold the net shares distributed to me a week or so after receiving them (all occurred in same year). I tend to view the allocation of the total FMV of my award into two pieces – the shares I actually receive and the value of the withholding paid to the IRS on my behalf. In your example, the total FMV is $5,000 and I get $3,000 in shares that I can keep or sell and I get $2,000 in withholding “credit” that is essentially my money but is paid to the IRS as a prepayment of my tax on the award (actual tax could be higher or lower). Since I further sold the shares distributed me, I have gain/loss based on sale proceeds vs my basis ($3,000 in total or $60 per share).

    My 1099 for this makes sense to me. Where I am getting confused is that I exercised stock options this year for the first time. Assume I exercised 800 shares at a strike price of $10 and automatically sold at $15 per share. My taxable income was $4,000 (gain of $5 per share times 800 shares). There was withholding of $1,000 (at 25%). All of this shows up in my W-2 which makes sense to me. But I don’t understand why my 1099-B shows my basis in the sold shares as $15,000 such that I have no gain or loss (actually a small loss but I am ignoring commissions). It makes sense that there is no gain or loss on the sale of the shares since I did not hold them long enough to allow price fluctuation but I would have thought in order for me to be credited for withholding taxes (which I was), the shares I was able to sell after exercise should be lower (same concept as the RSU net issuance). My 1099 shows the sale as 800 shares even though it shows the net amount of shares for the RSU sales.

    As I typed this out, it became more clear in that the FMV of the stock option exercise event was $4,000 and I received that in cash of $3,000 ($4,000 less $1,000 wht) and in withholding tax “credit” of $1,000. My taxable income should only be $4,000 which will already be reflected in my W-2. So, it makes sense that my basis and sales proceeds should be the same on the sale. I think I was just confused since my basis for RSUs were based only the net shares received whereas for my stock options my basis was based on the total number of shares. The difference seems to be that the sales proceeds for RSUs were also based on the net shares and for the stock options based on the total number of shares.

    Sorry for the confusing discussion but thought I would post anyway in case you had any different view or if it would help anyone else.

    Thanks!

    • Harry says

      @Rob – Your $15,000 should be $12,000 ($15 * 800), but other that that it all makes sense. Your basis in the option exercise isn’t just your taxable income. It’s that plus your cost to acquire the shares (the $10/share strike price). Think of RSUs as options with a $0 strike price and a mandatory exercise upon vesting.

  191. John says

    I sold restricted shares last year. They were “awarded” to me as part of an incentive plan around bonus time. These shares were not purchased by me. Anyway, they were originally awarded at a much lower share price than when I sold them. So, there is about a $5000 gain. That seems to have affected my federal tax refund by about $800-$1000. Not sure if I should see a tax specialist. In turbotax, I chose the option that I “bought” the stock because there wasn’t an option in turbo tax for employee awarded stocks.

    • Harry Sit says

      The award was already added to your W-2 at that time. It would be the same as paying you cash and having you buy the shares.

  192. G Gill says

    One thing that is puzzling is if I get RSU that got vested and for simplification I just hold on to them.

    I am still paying taxes twice.
    1. At the time when they are vesting, certain RSU and sold to cover tax.
    2. When I file my Tax Return in year vesting happens, all vested RSU income is added to my W2, including RSU that were sold to cover tax. So my AGI is higher by that amount and I pay tax the second time because the RSU sold to cover Taxes do not appear in Federal / State / Other Taxes sections of W2.

    Not to mention I will paying capital gains when I sell them in future.

    So this is different from Cash Bonus as tax is accordingly reflected in Federal / State / Other Taxes columns in W2.

    So is this accurate assertion ?

    • Harry Sit says

      This part is not true: “the RSU sold to cover Taxes do not appear in Federal / State / Other Taxes sections of W2.” Your W2 will include the value as taxes withheld.

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