Ever since I wrote Restricted Stock Units (RSU) Sales and Tax Reporting, I received many questions. They all relate to sell-to-cover, which is the default, and often the only option people have for their restricted stock units (RSU). I must have not been crystal clear in my previous post. Otherwise I would not have received so many questions. I thought of a better way to explain it. So hopefully it is clear this time. For background on RSUs and tax withholding, please also read my previous post Restricted Stock Units (RSU) Tax Withholding Choices.
Let’s use this hypothetical example.
100 RSUs vested on 4/20. The closing price on the vesting date is $50 per share. The company sold 40 shares for taxes. You received 60 shares. Without the RSUs, your W-2 income for the year would’ve been $60,000, with $8,000 withheld for various taxes (federal, state, social security, medicare).
This transaction can be deconstructed into 5 steps as follows.
1. The company gives you a cash bonus. In our example, the bonus is $5,000, which is the closing price on the vesting date ($50) times the number of RSUs vested (100). The company adds this cash bonus to your W-2. If your W-2 income without the RSUs is $60,000, your W-2 income with RSUs now becomes $65,000. After the end of the year, they will issue you a W-2 showing $65,000 in box 1.
2. You use the cash bonus to buy shares. $5,000 bonus buys 100 shares at $50 a share. Buying shares by itself does not trigger any taxes. Your cost basis in these 100 shares is $50 a share, for a total of $5,000.
3. The company sells some shares on your behalf for tax withholding. In our example, they sell 40 shares on your behalf. You may have to report sales of stocks on your tax return. There can be two variations here.
3a. The company does not use a broker. Instead of giving you 100 shares, they just hold back 40 shares and give you “net” 60 shares. This is called “net issuance.” You don’t have to do anything special on your taxes unless you sell some of your 60 shares.
3b. The company uses a broker. The shares are sold after vesting. The sale price may be slightly different from the price at vesting. You have to report on your taxes for this “forced” sale. If you sell some of your remaining shares, you will have to report those on your taxes separately.
In scenario 3b, suppose the sale price for the tax withholding sale was $50.60 and the broker’s commission was $20. The net proceeds of the sale was $50.60 * 40 – $20 = $2,004. You report on your taxes:
| Description | 40 Shares XYZ Corp. |
| Date Acquired | 4/20/20xx |
| Date Sold | 4/21/20xx |
| Sales Price | $2,004 |
| Cost Basis | $2,000 |
| Gain or Loss | $4 |
If the shares are sold at a lower price, you show a loss instead of a gain. The loss can offset capital gains elsewhere. After that, it can offset up to $3,000 of your ordinary income. If you still have more losses, the remainder is carried over to the next year, offsetting any gains you have next year and up to $3,000 of your ordinary income again next year.
4. You hand over the money from the stock sale to your employer. Your employer remits the money to the federal and state tax authorities. They add the taxes paid to the withholding numbers on your W-2. If your tax withholdings without RSUs would’ve been $8,000, your tax withholdings with RSUs now become $10,000. After the year end, the W-2 you receive from your employer shows $65,000 of income (step 1) and $10,000 in withholdings.
5. Finally, your employer gives you the remaining shares. You bought 100 shares in step 2. They sold 40 shares on your behalf in step 3. You have 60 shares left.
Now, when you file your tax return,
- Enter the income and taxes paid from your W-2 as-is. The RSU related income and tax withholdings are already included on your W-2. You don’t have to do anything else with them. Do not add more income. Do not add more taxes paid.
- Report the stock sale as shown in step 3b if your employer used a broker for the sale. If the company does not use a broker and it just issues fewer shares to you (“net issuance”), you don’t have to report the shares sold for withholding. Otherwise you might have a small gain or loss depending on the sale price and brokerage commission if any.
Your cost basis in the remaining shares stays at $50 a share. In our example it’s $50 * 60 = $3,000 in total. Whenever you sell these shares, you have to remember this cost basis. If you sell them for more than $50 a share, you have a capital gain. If you sell them for less than $50 a share, you have a capital loss. You will report the gain or loss in the year you sell these remaining shares. The gain/loss will be a short-term gain/loss or a long-term gain/loss depending on your holding period after the vesting date.
I hope this post addresses all the questions. If you break up the RSU vesting and sale this way, it’s not that complicated.
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ean says
I’ve read (and re-re-read) all this great info but I still can’t decide if my quarterly vesting RSUs are a WASH sale due to 6 month ESPP purchases. I always get a small loss on each sell-to-cover (due to etrade $19.95 commission) and I’ve been reporting the losses the last few tax years. I also buy ESPP every 6 months so I guess that half of my RSU vests should be a WASH. (ARGH why does this have to be so tricky!)
Harry Sit says
ean – See comments #9 and #10 and especially the link in #10 about wash sale. Wash sale covers the day of sale and 30 days before and 30 days after. Did you buy ESPP shares in that timeframe? Salary deductions don’t count as share purchase. Only the actual purchase at the end of the six-month ESPP purchase period counts as purchase.
If the sale does fall within 30 days of purchase, I would be conservative and count it as wash sale. You don’t lose your loss in a wash sale. You just postpone it to the ESPP shares.
Naveen says
Hi,
I had some of my RSUs vest last year. At the time of vesting, I paid the necessary taxes using money in my brokerage account (mistake, I am regretting now :). I was checking my W2 and I do not see the taxes that were taken out of my account included anywhere. Total value of the vested RSU’s, approximately $3000, are included as ordinary income in my W2. I checked all my paychecks since the vesting date and I do not see the extra taxes included in any of them.
How do I include the taxes taken out of my account in my tax filing ?
Harry Sit says
Naveen – See comments #20 & #21. Check your paystubs both before and after the vesting date.
Rose says
Thanks for continuing to post and help. When I use Turbo Tax Premiere to report restricted stock, in the end I have an error that my RS doesn’t match my W2 reporting. This seems to be because my W2 reports both “sell to cover” restricted stock and RS where the taxes were paid with cash, so there was no sale. From what I read in your posts, if there is no sale it is reported in your W2 and need not be reported elsewhere until it is sold. The error message is this: Employer Stock Compensation Income Wks: Part III Column (f)-1 ($10,000) should not exceed the total amount of 6,000. If I only sold $6000, but $10,000 of tax was reported, what I am I doing wrong?
Harry Sit says
Rose – Sorry I can’t provide free tech support for TurboTax. I said several times in the comments already — stay away from the confusing help provided by TurboTax. Go straight to spreadsheet-style entries.
Rose says
Thanks for writing back. You are the hero of the hour! Just to clarify… I only report any RS that was sold (even if just to cover tax) and the other vested RS doesn’t need to be reported until it is sold officially, even though it was already taxed and reported on my W2? This seems a situation of something that is so simple, it is confusing. (Tax Act seems to just take it as it is, but Turbo Tax has increased our refund by $1000, which seems directly related to the RS amount that was not sold but still reported. ???)
Harry Sit says
Rose – It is correct you only report on Schedule D when you sell the shares. You will have to print out the returns from the two software programs you are using and see where the difference comes from. Make sure you didn’t over-state your tax withholding. I’m guessing you gave the wrong answer to a question “was there tax withholding for this sale” in TurboTax.
Mani says
Excellent article. This one page cleared all my questions regarding RSUs and reporting the transactions. Thanks.
Carlos says
Hi, I’m a bit confused and hope someone can give me some help. After 1 year 25% of my total restricted stock ward vested and 197 shares were automatically exercised. I was given the option and opted to sell-to-cover. The company sold 77 shares leaving me with 120. I have not sold any more shares from this grant. I have since left the company and have been unable to get information from the plan administrator. I have a 1099-B from the broker (e-trade) that states there was gross income (less commissions and option premium) of $2,026.67, further details of the sale says that $2,016.02 for taxes was already withheld. In the end I got about $11 in net proceeds. My question is do I owe any more taxes?
Lorna says
I just wondered why you consider it necessary to file a Schedule D for the sell to cover stock sold at the time of vesting. These stock are sold by my company, and although I agree that they are sold on my behalf, I have never received a 1099-B form related to their sale, so why would I need to account for them in my return?
Becky says
Exactly what I needed to know. Thanks.
Sonya Evanosky says
I have a very similar situation as “Yo” who posted in February 2010. My RSU’s vested in March 2008 and I chose the sell to cover option. I kept the shares and then sold them in January 2009. At the time of the vesting, the RSUs were worth $16.75 per share and the taxes were taken out. However, by the time the shares were sold in January 2009, they had declined to $8.50 per share. Can I record a loss on this? If so, is this considered a short term capital loss or a long term capital loss?
Thanks so much for your help!
Curtis Gilker says
Let’s use your example. My numbers are different, but that doesn’t matter.
$5,000 bonus buys 100 shares at $50 a share, for a total of $5,000. The $5,000 is added to my monthly pay (and to my W-2 income).
“The company sells some shares on your behalf. In our example, they sell 40 shares on your behalf, i.e. $2,000.”
“You hand over the money from the stock sale to your employer. Your employer remits the money to the federal and state tax authorities. They add the taxes paid to the withholding numbers on your W-2. If your tax withholdings without RSUs would’ve been $8,000, your tax withholdings with RSUs now become $10,000.”
Here’s where it appears to go off-track for me. My company added the $2,000 from the share sale for tax withholding to my monthly pay as well (and to my W-2 income).
After the year end, the W-2 I receive from my employer shows $67,000 of income (no the $65,000 in your example) and $10,000 in withholdings.
This seems like a mistake to me. Am I missing something?
Harry Sit says
@Curtis – Please note the $5,000 in my example is the gross amount. It’s not just the value of the shares you are left with. It includes the $2,000 in taxes withheld. In a sense the $2,000 is also added to income because it’s part of $5,000 but it doesn’t make sense to count the taxes twice.
Harry Sit says
@Sonya – Yes, short-term loss.
Joe says
I appreciate the help you are providing. My situation is somewhat similar to your example, with some differences. I have 4 separate share releases, each with own vesting date and closing price. However, ALL of my shares were sold at once and I have only 1 figure for the amount withheld for taxes. When I try to work it in TurboTax, it seems like I’m supposed to know the number of shares withheld for taxes for each of the 4 lots. Do I divide the figure I have among the lots, keeping the same ratio as number of shares in each?
Many thanks!
Chris Angeloro says
I am trying to determine what is in my best interest when it comes to RSU’s and sell to cover. My employer awarded me a stock bonus and an automatic STC transaction happened leaving me less shares. If the stock price were to multiply by 10 in a year would I have been better off paying my own taxes up front and hold all the shares to sell at the high price and pay all the taxes at that time?
Susie says
Just wanted to say a hearty “Thank You!” for this site. I was having a late night panic because I have to complete my taxes tonight (financial aid deadline for grad school) and I didn’t understand the RSU information I have or how to enter it into TT. Your concise, clear explanations answered all my questions. And, entering the information correctly (instead of the mess I had before I read this) resulted in a couple of thousand dollar difference in my taxes in the good direction! Cost basis always messes me up, and I forgot to multiply it by the number of shares (oops).
Point is: THANK YOU!! : )
tea4two says
Hi TFB,
You use the same example in both this site and “Restricted Stock Units (RSU) Sales and Tax Reporting” that said the cost base for same day sale was $5000 and I thought this was amount written to Sch.D. Now I am not so sure because you say in this site the cost base is $3000 for the remaining shares. Is the cost base of $5000 just to calculate the tax withheld? and it is $3000 that is written to Sch.D?
Thanks in advance.
Harry Sit says
@tea4two – It depends on which shares you are talking about. “Same Day Sale” in the previous article “Restricted Stock Units (RSU) Sales and Tax Reporting” means selling all shares. In that case the cost basis is $5,000. This article talks about “Sell to Cover” which means selling only enough shares to cover the withholding and keeping the rest. For the shares sold for tax withholding, the cost basis is $2,000; for the shares you keep, the cost basis is $3,000.
mj says
Please help -my situation is slightly different
167 shares vested in 2010 @ $55/sh
107 sh x $55 = $5,885 income shown on subsequent pay stub, but not identified specifically identified on 2010 W2, although W2 income increased accordingly, while 67 shares withheld for taxes
Sold 107 a month later for $50/sh (for a $5/share loss)
My question is – I’ve recorded the sale transaction (loss) on Schedule D, how do I show the vesting event – 67 shares on Schedule D, so I’m not taxed twice?
patela6 says
Hi TFB,
I have a similar issue to others. I get an error during final review because my W2 number for RSU doesnt match the vested (and sold) shares. This is because there are vested and UNSOLD RSU’s that I have not included in my return.
How do I rectify this?
a. somehow include the vested, but unsold RSU’s in Turbotax? This increases my taxes!
b. use the spreadsheet method of reporting in Turbotax? have they not addressed this yet?
Thanks!
Harry Sit says
@patela6 – It sounds like TurboTax assumes you sold all vested shares if you use its friendly step-by-step help. So just use the spreadsheet method and don’t bother with the extra help it’s trying to give you which actually messes things up.
My TurboTax Basic doesn’t have the extra help for RSUs. It handles the RSUs just fine. If someone gifts me a copy of TurboTax Premier, I will figure out how to please it in the step-by-step interview.
Kevin says
Hi TFB Great site.
I have been following your articles since last year on RSU- decompiled…etc.
Have you used TTAX2010 premier to enter the VESTED but unSOLD RSU stocks?
My employer sells some RSU to cover for taxes. I sold some and held on to others. All RSU are accounted for in my W2 income.
However TTAx2010 errors out during the final checks of T TAX 2010 returns – as my totals of RSU sold vs reported in W2 are not equal.
Any suggestions how to input RSU received but not sold in T TAX 2010 premier?
Thanks you.
Kevin says
Hi TFB;
I just saw your previous comment to PatelA on April 5th I will try out the spreadsheet method ( vs EasyGuide) for RSU if I can find it in the TTAX2010 premier…. will update you in 24 hours. There are atleast a dozen other users who are facing similar issues for Vested but unsold RSU with TTAX2010 on thier Live Community knowledge base.
KevinS
Harry Sit says
@Kevin – I played with TurboTax online. If you sold some and kept some, when it comes to the page where it asks you how much was included in the W-2, just type the same number TurboTax has. It’s asking with regard to those shares sold, how much income was included. Your answer: all of it. The additional income for the unsold shares is not related to the sale. Therefore don’t include it in your answer.
KevinS says
Hi TFB;
I have tried your suggestion above i..e. only stating the RSUs SOLD I put the same number as TTax2010. In doing so the Taxes increases. Since the total W2 wages are higher – I have already paid tax through my employer”sell to cover’ option.
In summary:
On the worksheet: Part II column d on TTAX2010: If the computed amount is less than column f W2 total RSU wages then you get TTAX error during final check. – If you state only the RSU sold.
On TAX2009 there was an option for adding RSU vesting only and I did not have the issue then; only in TTAX2010 they have made this change, hence this error.
I can use HRBlock deluxe to do the same. is there a step by step instuctions you can provide for ISO/NQSO and RSU? Thanks.
CelinaS says
Another tricky RSU question.
I was issued 1,063 shares in September 2010. My employer was supposed to do the “net of tax” and reduce my shares but they forgot to. As such I was issued all my shares. The total FMV of shares was included in my taxes. FMV was $6.85 at date of issuance.
Subsequent to this, another set of RSUs vested in March 2011. My employer reduced my shares by the number of shares I owed previously for the September 2010 issuance for taxes plus the shares for taxes in in the current year. There was no brokage firm involved, and it was a net issuance. I was supposed to receive 3,187 shares but my shares were reduced to 1,928 (282 for first issuance, 977 for second). FMV was $11 at date of issuance.
How do I determine my basis and are there any 2010 tax consequences for the employer error?
Coco says
Thank you again for this wonderful site and your time answering questions. I have been receiving RSUs for a few years and can now follow and understand them in the 3 places they appear on my paystub — in the earnings section, in the taxes section, and in the after-tax deductions section, where the RSU offset shows up.
This month, for the first time, I noticed something called an “RSU refund” in the after-tax deductions section of my paystub. This refund figure is a negative number (unlike the RSU offset figure, which is always a positive number). The other odd thing about this RSU refund line is that it has an entry in both the “current period” and the “YTD” column, whereas all my prior paystubs that show RSU activity have entries ONLY as YTD figures, never as a “current period” figure, whether in the earnings, taxes, or (for the offset) in the after-tax deductions section of the paystub.
I do not find anything about “RSU refund” on your site or searching online generally. Can you tell me what this is? What does it mean in terms of tax treatment when (1) the RSUs vest and (2) I later sell the shares that actually come to me? (My employer does a sell-to-cover whenever RSUs vest, and I get a reduced number of shares from what the grant was.) Thank you so much.
Rahul says
Excellent post… This was very helpful. Thanks!
Julie says
Awesome post. Thank you very much.
Ryan says
Thank you, very informative… My example from last year, the treatment was called “Withhold to Cover”, my vesting amount was 19 shares, 8 shares were used to cover taxes, and it showed a “gain” of $0.57 with a final award of 11 shares. I assume this is the “Sell-to-Cover” and not “Net Issuance”? I can’t say I personally inputted that $0.57 gain anywhere on my taxes for 2011, if it wasn’t automatically on my W2.
A question – does the share price used when the grant is first declared matter for taxes in any way (i.e. my # of shares for the 3 year vesting schedule is declared well before the first vesting, so they had to use some historical share price to set how many shares I would be receiving). It doesn’t seem to matter for anything other than that.
Would love a link to tax treatment for Employee Stock Investment Programs that include discounted purchase if you have one! That is what gives me the worst headaches on taxes…
Harry Sit says
@Ryan – Did you receive a 1099-B for the 8 shares sold? If you did, you should account for it on your tax return. The IRS gets a copy of the 1099-B. If their computer doesn’t see it on your return, they will ask you about it. To your second question about the price at the time the RSUs were granted, you are correct — it doesn’t matter.
Ryan says
Thanks for replaying so quickly…I was overwhelmed by all the 1099-[insert letter here]s and by the pains of reconciling sales of discounted company stocks purchased in ~5 different lots and that went through a custodian change without the transactional records transferred…so I can’t say for sure! But I do not see one that seems to reflect the share amount or date of the grant.
The “Restricted Award Transaction Advice” notice from the account servicer lists the line-items as “Shares Withheld for Taxes”, “Total Net Shares Issued”, and “Total Net Cash Proceeds”…maybe we use a the Net Issuance you described and not Sell-to-Cover? I’ve heard something about the company using stock they hold in our corporate treasury for purposes of meeting stock grants, so perhaps they are netting it out, transferring shares to me, and paying the tax portion with company cash? This stuff gives me headaches!
Ryan says
@TFB
talked to our plan administrator and turns out it is indeed Net Issuance….my questions are now answered, thanks!
scott says
TFB, I cannot figure out my situation. For example, I have 100 RSU vested at $10.00 in 2009, the company withheld 40% ($400) as tax, on my w-2 of year 2009 I have $1000 as income and $400 as tax withhold. My RSU broker account still has 100 RSU shares. In 2011 I sold these 100 shares at $30, so how to calculate my gain and tax? My think it is ($30-$10)*200=$2000. This $2000 should be my long term gain and the tax should base on this $2000. Am I right?
Harry Sit says
scott – Yes, but it’s ($30 – $10) * 100 = $2,000, not * 200.
scott says
Thank you very much!
Ben says
TFB, Your comments are greatly appreciated. I want to make sure I’ve followed the threads above correctly.
(1) If I get say 1000 RSUs this year @ $10 and the company witholds 100shares for tax, 900 are deposited in my account. The totals show as $10K Income and $1K tax already on my W2. If I do not sell any there is nothing for me to do. Correct?
(2) If I sell 100 shares in the same year at say $11. Then I need to understand the cost basis. which is 100*$10 or $1K so I will realize a gain of ($11-10)*100=$100. TT asks how many were granted, If you put in the original 1K RSUs looks like you will be double taxed. If instead if you put in (in this case) 200 RSUs noting 100 were for taxes it leaves the 100 shares to be used as the cost basis. Is this line of thinking correct?
(3) If you sell additional 150 shares in a following tax year at $12, then in this case you don’t have to put in the number of shares sold to cover taxes since they were paid the previous year. In this case I would enter 150 shares with zero entered to cover taxes, using the sale of $12 plus the date of vest from the previous year with the original $10 price paid to calculate cost basis. Is this last one correct?
Thanks in advance for your response
Harry Sit says
Ben – As I wrote several times in these comments already, use “Enter on a Spreadsheet” in TurboTax, not the EasyGuide. Try it. It’s much easier.
Caryn says
Thank you! This was the most helpful advice I found thus far re: reporting RSA sell-to-cover taxes.
Meg says
Hi TBF,
I am getting confused in TurboTax. I have RSUs that vested in 2 lots. The first lot I got 83 shares and sold 36 to cover tax, and in lot 2 I got 20 shares and sold 9 to cover tax. I reported both of the sell to cover transactions as Investment Sales in TurboTax. I entered the sales in manually and chose “RSU” as the type of investment. Then, I was asked to specify which vest lot I sold the shares from. For example, in the instance where I sold 36 shares, I had to say that I sold the shares from the vest lot where I got 83 shares; but it’s the same lot that I’m reporting the taxes sold on! Is that the right way to do it? I also enter new lot information for every single RSU Investment Sale that I create in TurboTax.
Is entering Investment Sales in TurboTax equivalent to filling out a Schedule D? Do I need to report the total number of shares I was granted anywhere besides in the “vest lot information” section for a specific Investment Sale?
After I enter all my investment sales, TurboTax shows me the “Your Employee Stock Plan Results” page and shows me an amount calculated which is 3x the amount listed in box 14 of my W2. How is it calculating this amount? What have I done wrong?
Harry Sit says
Meg – Sorry, I don’t know what’s going on with TurboTax. Not in a mood to work as free tech support for them.
Christine says
Just wondering if you would mind clarifying this for me…
Say I had 10 shares of stock vest this year and 5 were sold to cover taxes. I have not sold the remaining five shares. On Etrade it says the cost-basis is 23.81. When I put info into Turbotax for cost-basis do I use 23.81*5 for the 5 shares sold, or the total 10 shares I received?
Jaxen says
I have a bit of an unusual situation. My RSU’s were released to me on 12/31/12. It is a sell to cover transaction with my broker. Apparently the actual sale date was a few days later which makes it fall under 2013. The RSU’s were accounted for in my W-2 but since it wasn’t sold until 2013, it does not show up in my 1099-B. How should I handle this?
Harry says
Jaxen – Nothing to do if it doesn’t show up on your 1099-B for 2012.
Jaxen says
Hi Harry,
Thanks for your reply. However, if I was granted RSU’s on 12/31/12 and the sell to cover did not happen until a few days later in 2013, does that mean I need to pay the taxes on the RSU’s in cash for 2012? The income shows up on my W-2 and the sell to cover would not apply for my 2012 income?
Harry says
Check the tax withholding on your paystubs and W-2. Your employer probably already booked the tax withholding in 2012. If not, you will have to pay cash in 2012 but you will get a credit in 2013.
Esther says
Love the breakdown of this. My only dilemma is..
The total dollar amount from the # of shares sold (for sell to cover) is slightly more than the actual taxes need for the shares vested. I end up with $18+ because the amount from the shares sold wasn’t the exact amount needed to cover taxes, slightly more. Where and how do I report this gain.
Other tricky part is although ti shows as a net gain in my stock transaction on etrade, my cost basis for the RSU vesting was more than the price at which the stocks were sold for sell to cover which would mean I would report a loss.
not usre where the positve $18 comes into play. 🙁
Harry says
You don’t do anything about the $18. Do it as if you bought the shares at the vesting price and sold at a loss. That’s it.