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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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.
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.
Harry Sit says
Paul W – In that case don’t worry about it. See comment #88.
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?
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.
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.
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?
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?
Harry Sit says
@John – No.
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?
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?
Kenny K says
@Zack – Was the tax payment/withholding you gave to your employer reported on W-2 from the employer?
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.
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?
Harry Sit says
@Chuck – No.
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!
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?
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.
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!
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?
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.
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…
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?
Harry Sit says
@Jen – Just report the W-2 income. He didn’t get any shares.
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 ?
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.
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.
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 🙂
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.
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.
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
bit says
also, do we have to fill out schedule D for $933.90??
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
Alice says
Very useful and clearly written. Bravo!
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
Tyler says
One other thing, do I check the box that say taxes were withheld (not common)?
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.
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.
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.
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….
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.
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.
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?
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
Harry Sit says
@Peter – That’s right. Nothing else.
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
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.
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!
Jeremy says
If you got a 1099-B, then I would think you better file a Schedule D.
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