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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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?
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?
Harry Sit says
Bala – Sorry I have no idea how you are supposed to report taxes withheld and paid to India.
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!
Taxfool says
Do you know if RSU are considered community Property?
Harry Sit says
Taxfool – Sorry I don’t know the answer to your question.
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!
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?
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.
Harry says
Chris Trost – Sorry I don’t know the answer to your question.
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?
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?
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!
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.
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?
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
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?
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.
Mike Chartier says
Harry, great work and thanks for explaining something that I have been trying to understand for many years. A+
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.
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.
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.
joann says
Informed that as of 2014 the cost basis on 1099 for stock options we purchased will be what we actually paid instead of what the market price is on day of purchase. This is the first year IRS is doing this they said. Shares held at Merril Lynch. Said my accountant would have to adust cost basis. I have seen my 1099 and he was correct it is showing 52 instead of 75 for cost basis. we paid 52. per share. My accountant does not know what she needs to do to adjust it. I have tried several accountant and they donot know either. What should we do since that is a huge difference since we got 169 shares that we purchased at the lower price in the stock option. Please adivse. This is driving my crazy.
Harry Sit says
I believe this change affects stock option exercises and ESPP, not necessarily RSU. This article is about RSU.
joann says
We did have 40% taxes that we had to pay for for withholding taxes
stephanie b says
husband got 42 shares of restricted stock. he actually recd 28 shares as 14 were withheld for taxes. he got a 1099 for the 28 shares which shows the gross proceeds of 9880.03 and the cost basis of 9869.89. he also recd another 1099 for the 14 shares of stock which show a gross proceed of 4922.88 but the cost basis is blank. when doing my tax return should i put the cost basis for the 14 shares also as 4922.88?
Nathalie says
My husband cashed in some stock options (Restricted Stock) and some ESSP with E*Trade in 2014. All of them were classified as “non coverered Security” on the 1099-B. I did our taxes with TurboTax Premier this morning and after much frustration (I’m far from being an expert at this!), this is what I ended up doing. If someone would confirm my understanding of the new reporting rules and my subsequent reasoning, I’d be grateful:
Here is some information that I gathered from the various forms, notes on the E*Trade website, brochures, etc, that I read.
This was information provided by my husband’s employer:
“What are the new rules?
· Effective January 1, 2014 the cost basis reported on Form 1099-B for stock plan securities will reflect the price you paid to acquire the stock (for example, the grant price or purchase price).
· In past years, the IRS allowed brokers to increase cost basis to include ordinary income amounts you recognized for the securities.
· Beginning in Tax Year 2014, ordinary income adjustments by brokers are no longer allowed.
What does this mean to you?
· You will need to understand how much ordinary income was recognized for stock plan securities sold in your account, so you can make any necessary cost basis adjustments when you file your taxes.
This is what I observed after perusing our 1099-B from E*Trade:
When importing my E*Trade 1099-B form into TurboTax, the “date acquired” and “cost basis” fields were left blank and I had to then input data into each of those fields manually for each lot sold.
For the cost basis, I first input the figures from the “Cost or Other Basis” column from the 1099-B. Since most of the lots on the form showed “$0” in that column, my tax bill was very, very high. (The ESSP lots did show a “cost” listed, which ended up being only the Acquisition Cost portion of the Cost but the Restricted Stock lots all showed “0” as the cost listed).
I then read in an E*Trade brochure entitled “Reporting the Release and Sale of Restricted Stock or Performance Stock on your Tax Return” that states: “The ordinary income from the vesting (or award, if you filed an 83(b) election) that was reported on Form W-2 can be used as a cost basis adjustment on Form 8949, so that you would not be subject to double tax on this income.” Furthermore, in the same brochure under “What is my cost basis for the restricted stock or performance stock?” the answer states “Your total cost basis for the stock is equal to your acquisition cost — in other words, the amount you paid for the stock, if any — plus the amount of ordinary income you recognized when the stock vested (or when it was awarded in the case of a Section 83(b) election.)”
As directed by the brochure and the explanation from my husband’s employer (quoted above), I then viewed the Employee Stock Plan Gains & Losses page on E*Trade. On that page itself, the cost basis listed for each lot was the same as on the 1099-B. HOWEVER, for each lot sold, there was a small arrow next to the word “sell” (at the beginning of the line) and when I clicked on that arrow, I could then see the detail of the cost basis, which was indicated once again as being the combination of the Acquisition Cost AND the Ordinary Income. However, (because nothing is ever easy when doing one’s taxes!) those lines were listed separately and I had to calculate the total by hand. I created an Excel spreadsheet where I reported everything – my own version of the 1099-B but with the information that I needed – so I have a clean copy of everything on one page since E*Trade won’t let me print the “extended” version of their Employee Stock Plan Gains & Losses screen with all the details.
As I understand it (someone correct me if I’m wrong!), the Ordinary Income part of the cost basis is income that my husband’s employer had already reported on his W2 form when the stock had vested, and on which we had already paid federal taxes.
I then corrected the cost basis for each lot into TurboTax by changing it from the “Cost” listed on the 1099-B to the Acquisition Cost + Ordinary Income total (Adjusted Cost Basis) that I had calculated on my spreadsheet. This lowered our tax bill by 2/3 so I really hope I was right. I was thinking about getting an accountant to double-check this but if people are reporting that accountants don’t seem to know how to report those either, maybe I’ll take my chance with the IRS (I haven’t submitted the return yet). I don’t see how an accountant could have the information needed without having online access to our E*Trade account, though, since the Ordinary Income isn’t being reported to the IRS by E*Trade (so it’s not on any printed or imported forms).
Sorry for the long post!
Harry Sit says
This article is about RSUs, not ESPP. For a step-by-step guide on how to report the sale of stocks from RSUs in TurboTax, see Restricted Stock Units (RSU) and TurboTax: Net Issuance.
Jim says
Thank you for such a informative piece. You had saved me THOUSANDS this year! The 1099-B has reported 0 in Box 1e Cost or Other Basis on the RSU sales transaction. While using Turbo Tax to import the 1099-B the whole amount of the proceed has been treated as Gain. Only by the end I am getting suspicious the substantial tax return amount difference churned out by TT than the last year then I noticed this problem.
In my opinion Turbo Tax drops the ball big time here. Its helping topic on Cost Basis didn’t list RSU and how to calculate it, thus made user unaware of the 1099-B pit fall.
I will be more careful about how much trust I will put into Turbo Tax in the future.
Daryl H. says
This is such a great article & thanks for all of your efforts in what’s an extremely complicated area. This may have been asked, but can you PLEASE assist me? My organization awards us several performanced based RSU awards throughout the year, which are taxed and a portion of shares are held for tax purposes. In 2014 I sold a significant number (all under a year). My new accountant was going off my 1099 and the Capital gains were through the roof and the cost basis was blank. My question is how do you calculate the cost basis? My accountant states the cost basis is $0. I thought the cost basis was the stock was at the time of vest x the number of shares. Thus the gain or loss would be the number of shares x the stock price at the time of sale. Is that correct? Again, I sincerely thank you!
I also sold ESPP, but that cost basis is much easier to calculate.
Harry Sit says
Daryl – The correct basis is the per share price on the vesting date times the number of shares sold. If the shares sold came from multiple vesting dates, you will have to break them down and add them up. See the linked article under #1 Net Issurance for how to do it in TurboTax. It will give your account some clue for how to do it in his or her software.
RHarry says
Thank you for this site! So fantastic. Thanks. I have a corner case question. I am an American employee of a European firm posted Germany. My RSUs vested last year (and the year before), and are held in a German bank. I don’t receive a W-2 since I live, earn and pay taxes in Germany. I was doing my taxes by-hand, blissfully leaving out RSUs since I was not doing anything with them – which is why they were easy to do!
Started using TurboTax this year after I learned about the RSU tax treatment and came across this page. Once again, thanks. Now my question.
I believe I can manually enter last year’s data in per what you suggest. But what do I do about the year before?
Harry Sit says
If you don’t get a W-2, is the value of the vested RSUs included as your income in Germany? If it is and you are using it for your US tax return, then it’s already accounted for. If you need to add this income for previous years you can always amend your returns.
RHarry says
Thanks! The salary statements here are inscrutable and I could not figure this out, so I broke down and asked around (Payroll did not know what I was asking!) – they did not include it!!
I’ll now see how I can enter it for 2014 based on your (so excellent! thanks again) explanation above. And look into amending for the year prior.
Either way, I see an extension request in my near future. Grrrr…
Don’t know how to work out the Social Security / Medicare portion of the taxes. Does IRS do that automagically?
Harry Sit says
RHarry – Sorry I don’t know how it works when you work overseas.
John Smith says
I have a “sell to cover” RS transaction. My 1099-B does not report a Date of Acquisition (Box 1b) or a Cost or other Basis (Box 1e). I assume the Date of Acquisition is the same date as the sale date? The cost basis is unclear however. Since this is RS (an employee award), the shares were not purchased by me. They were “awarded” to me by my company based on my performance. So if these shares were awarded (not purchased), would the cost or other basis be 0 (since I did not purchase)? Or would I find the cost or other basis by multiplying the FMV of the shares at the time of award by the number of shares?
Harry Sit says
The Date of Acquisition is the date the shares vested. The cost basis is the price on the vesting date times the number of shares sold. If your plan says it’s RSU then it is.
John Smith says
And its also not clear whether I have an RS or an RSU. My year end stock plan summary says the Grant Type is an RSU. But the description in TurboTax sounds like an RS (employee award for performance).
RS:
A grant your employer gives you of the company’s stock. Your rights to the stock are restricted until the shares vest. The vesting period is satisfied by the passage of time, the company’s performance, or your performance. Shares are generally forfeited if you don’t meet the conditions established by the company prior to the end of the vesting period
John Smith says
So I chose the RSU option. The only question I have left is that on one of the screens in Turbotax, it asks for the following information:
Total shares vested/released:
Shares withheld (traded) to pay taxes:
Are these specific to the sell to cover situation? According to my statement, 107 shares were released on April 23. It also says that 64 were retained. 43 were “Release – sell to cover”.
Is the “shares withheld (traded) to pay taxes” the same as the number of shares sold to cover?
Did I do this correctly?
Total shares vested/released: 107
Shares withheld (traded) to pay taxes: 43
John Smith says
Just another note. I started the above (sell to cover report) by reporting a sale of stock under an RSU plan. Initially, Turbotax walks me through the net proceeds calculation (date sold, # shares sold, selling price per share). Total net proceeds are calculated (minus commissions). So, 43 shares * 32.xx (share price) – commissions
Then, on a completely separate screen (2 steps later) it wants to know information about the vesting/release of these shares (Enter Vesting/Release information). It asks for “shares withheld (traded) to pay taxes” as mentioned above. Isn’t that the “Sell to cover” shares that I am reporting? Isn’t that the shares I just reported 2 steps back with the net proceeds? Is Turbotax recognizing that “shares withheld (traded) to pay taxes” is the same as shares that were reported as sold in the net proceeds?
ravi says
I have restricted stock units for Company A(private) which has a parent company B(private). My stocks vest every year. After 2nd year the parent company B said that the Company A is dissolved. There is no payroll running for Company A right from the inception. Company B being the parent was running the payroll. When I have requested the price for the vested stock for the two years which I was supposed to get they said the company A is dissolved I will not be getting any money. What can be done in this scenario ?
j.k. says
My question is about cost basis, and thus taxable income.
My company vests my RSU award on April 1 (or other quarterly dates), but we have a closed trading window that does not allow me sell the stock vested within that grant except for 30 day intervals starting after the earnings call at the end of the same month.
Thus, effectively, my actual award (stock that can be sold for monetary recompense) might be legally mine on April 1, but the basis for income seems like it should really be the FMV of the stock at the opening of the trading window.
Example: if i am granted 10,000 RSU that vest on April 1, and the price on April 1 is $100/sh, then it is reported to the IRS that i have made $1,000,000 . My company performs what amounts to the Sell to Cover that you mention, taking away 4000 of my RSU and giving that to the government to cover payroll taxes. I am left with 6,000 RSU that supposedly are worth $600,000, but which legally i am not allowed to sell. Later, on May 1, when the market opens, the stock is worth $1/sh . Now, i have $6,000 worth of exercisable equity, and if the brokerage and the IRS did not quite calculate my tax liability correctly in the sell-to-cover, i could be “under water” (and let’s say the the $400,000 they collected in taxes on April 1 was about 2% below what’s needed for that part of the tax liability due to other income circumstances that cause the withholding to be under-estimated); then the $6,000 worth of remaining stock owned isn’t even enough to cover the remaining 2% miscalculation .
Shouldn’t it be the case that the FMV of the 4,000 RSU used to pay the taxes should be $100 shr, and thus the $400,000 in taxes paid would be properly accounted for, and then the other 6,000 RSU that i own would be taxed at the FMV at the first moment at which i’m allowed to sell them, or $1/shr? and shouldn’t i then only be taxed on $406,000 instead of on $1,000,000?) and shouldn’t i thus get some of that originally collected $400,000 back as a refund?
yes, the numbers in this example are exaggerated: the April 1 cost of the stock in question was about $47, and the first chance FMV for sale was about $35, and the amount of stock was about 3250 shares; i was choosing some large round numbers to make a point).
In other words, why should i have to pay tax on some amount of money that i can’t actually make any use of based on the legality of insider trading rules and the enforced trading rules around the sale of my company’s stock as granted through RSU.
Harry Sit says
You will have to explain to legislators and get them to change the law. Whether you “should” or not is really not the question. You can only go by what the law says.
Tiffany says
I had restricted stock that vested in July, and this award is all new to me. I just got my W2, and was surprised to see it was counted as income. Unfortunately the company did not sell any shares for withholding, so now we are looking at a HUGE tax payment to the government. We decided to sell the shares to pay for our huge tax bill, but they withheld half the shares for withholding at the time of sell. Where do I find information on this situation?
Dave says
Hi, I had vested RSU and ESPP shares which I sold in 2015. The company withheld shares for taxes upon vesting. I believe from the sales that these have been reported in my W-2 as additional wages. Also in 2015 I had a bad year trading and have a good chunk of capital losses. Is there any way to apply those capital losses to offset the income gains from the RSU and ESPP reported to my W-2? Thank you,
Dave
Harry Sit says
Dave – You get to offset up to $3,000 worth of capital loss against income, after you first offset any realized capital gains. Beyond that, no. You carry forward the loss and offset another $3,000 next year, and so on.
Dave says
ok, Thank you
Ingrid McClure says
Thank you for the great article on clarifying the RSU’s for ordinary income tax – I understand that completely. What baffles me is the impact on AMT – what amount is used on line 17 of the Form 6521 in the calculation of AMT? Is it the cost basis at the time of the vesting, selling date or at the end of the prior tax year? We sold all our RSU’s in the year in which they vested so we had a short term gain (understand all of that), understand schedule D and form 8949, but just need to know what figure to use on the AMT calculation on form 6251. Note we did not pay anything for the RSU’s. Any help would be appreciated – thank you.
Carrie says
THANK YOU. This is the first site to explain RSUs succinctly and in a manner I could understand and apply to my taxes. And I’ve spent quite a bit of time googling this.
Tony. says
Thank you, Harry. This is a great post!.
I have another related question – My employer issues dividends in the form of “restricted stock” equivalent (not cash payout) and I received 1099-DIV from the brokerage house.
I read somewhere that dividends as “restricted stock” equivalent are treated as regular income.
How do I enter these in TurboTax? (any insight is greatly appreciated).
Thank you in advance.
Harry Sit says
No idea. See if this helps from TurboTax: How do I report RSU dividend equivalent payouts in turbo tax?
Sue says
Thank you for the article. My first time dealing with RSU. If $46,000. was added to the w-2 to cover sale of 300 shares. And $100,000. was added to w-2 to cover taxes (600 shares). But on the 1099 B it shows the 300 shares at $46,000. but an additional 200 shares sold for $15,000.00. I do not think that the 200 shares were included in my w-2 but my husband does. How would I know ? Just ask my company?
Beth says
We had RSUs that vested on 1/1/2019, but did not settle until 2/27/2019. Can you please confirm if the ordinary income that is reported on the W-2 is based on value of shares on vesting date of 1/1/2019 or settlement date of 2/27/2019?
Harry Sit says
Please confirm with the employer. I’m not sure what you meant by the settlement date. Were the shares vested but you weren’t able to sell due to a blackout? In that case the compensation is still based on the vesting date.
Beth says
No blackout. The settlement date, in this case, refers to the date that the shares were deposited into the participants brokerage accounts and thus available for trade.
Harry Sit says
I don’t know why you had such a long delay. I also had a delay but only for a few days. The compensation was still based on the value on the vesting date.