[Completely rewritten on February 22, 2015 using new screenshots from TurboTax Online for 2014 tax year.]
One of the most popular posts on my blog is one I wrote four years ago about reporting tax on RSU. Although I try to do the best I can in deconstructing it, I still get many questions about it every year at tax time.
It’s a difficult topic because there can be many variations. Employers issuing the RSUs don’t help because they are afraid of liabilities. They just say “consult your tax advisor” as if everyone has one. Tax software doesn’t make it easy either. Although there are many variations, the software tends to go by just one. If your situation fits it, you may be able to muddle through. If it doesn’t, the software confuses you more than it helps you because your situation doesn’t match what it thinks you have.
For the longest time I only addressed the issue generically. I refused to work as free tech support for the software companies. If you paid for the software, they should help you with how to use it. Now I give up. I realize people are looking for step-by-step help and the software companies aren’t providing it.
The following is a sequence of screenshots taken from TurboTax Online. If you use the installed software, your screens may be different but similar. I show TurboTax only because it has the largest market share.
In this post I will use the most straight-forward case: Net Issuance. It’s probably the most common. I may do other variations in future posts.
In Net Issuance, the employer withholds a number of shares for taxes before giving the employee the remainder. For example suppose you have 100 shares vested but you only receive 60. You just don’t see the other 40 shares. The employer doesn’t use a broker to sell the 40 shares for taxes. It just keeps the 40 shares and puts some numbers on your W-2.
When to Report
Before you begin, be sure to understand when you need to report when you have RSU under Net Issuance. You report when you sell. If you only have some RSUs vested but you didn’t sell, there’s nothing to report yet.
Wait until you sell, but write down the per-share price when your shares vested. If you have multiple lots, write down for each lot the date, the closing price on the vested date, and the number of shares released to you. This information is very important when you sell.
Let’s use this example:
You had 100 shares vested on 8/1/2013. 40 shares were withheld for taxes. The closing price on the vesting date was $50/share.
You would write down:
|Vesting Date||Shares Received||Price Per Share|
Keep this information until you sell.
When you sell, you will receive a 1099-B from the broker in the following year. You will report your gain or loss using this 1099-B and the information you accumulated for each vesting.
Let’s continue our example:
You sold 60 shares from your vesting above on 2/10/2014 at $70 per share. After commission and fees, you netted $4,180. In 2015, you received a 1099-B from your broker showing a sales proceed of $4,180.
Now let’s account for it in TurboTax Online.
Click on My Account on the top, then Tools.
Click on Topic Search.
Enter employee stock plans. Click on Go.
Answer “Yes” to “Did You Sell Any Investments?”
Import your 1099-B if your broker is on the list or just type the numbers yourself from the 1099-B you received. I continue with typing it yourself here.
Select or enter the financial institution.
Look carefully which box is checked on your 1099-B. On my form it was Box B.
Now enter the information from your 1099-B. Date of Acquisition is the date the shares vested. If the cost basis is blank on your 1099-B, because it was not reported to the IRS, use your own record to fill it in. The price was $50/share when these 60 shares were vested. Therefore your basis is $50 * 60 = $3,000. If you didn’t sell all the shares vested in that lot, multiply $50 by the number of shares you sold.
If you have more lots, enter in additional rows.
That’s it. You got the shares at $50/share. You sold them at $70/share. You pay taxes on the gain.