Cost Basis for RSU "sell to cover taxes"

[hellerstvn]

I had an RSU vest this year, and elected this "sell to cover taxes" option. This sell appears on the 1099-B. So, TurboTax imported this from E-Trade for me, but complained about an empty cost basis field. My form had it as $0.00 is this correct?

Also, I am confused as to how this sell of shares is reported so that the taxes are right?

[TomYoung · Accepted solution]

"My form had it as $0.00 is this correct?"

No, it's not correct.

When your shares vested your employer calculated an amount of compensation for those shares, and reported that in Box 1 of the W-2, so you're going to pay taxes on that compensation.  The calculation of the compensation is:

(GROSS number of shares vesting before any "withhold" of shares or sale of shares for taxes) X (per-share FMV at vesting.)

So your per share basis is the same as the per share FMV your employer used.

If the 1099-B is reporting the basis to the IRS and is not using the correct basis then enter the 1099-B as it reads in the spreadsheet-like "fill in the boxes" default entry form.  Don't put anything in the "1g" box on this page.   Then click on the "Add More Details" box (or maybe "Edit Details"), and the "Start" button, (or maybe "Edit".)

On the next page select the first option which is to "I need to add or fix info about this sale that's on my Form 1099-B."  Don't select the 2nd option of "This sale may require special handling."  Tell TurboTax that the 1099-B is reporting the wrong basis and then enter the "missing" compensation to get to the correct basis.

TurboTax will report the sale on Form 8949 "as reported by the broker" but will put an adjustment figure into column (g) of the Form, a code "B" into column (f) of the Form, and the correct amount of gain or loss which includes the adjustment.

If this is a "same day" sale then the most common result from entering the sale is a small loss due to selling commissions and fees.

I've given this same advise repeatedly and posted a pictorial step by step guide, (for the sale of stock acquired via an RSU, but the process is applicable to any employer incentive stock plan sale), here https://ttlc.intuit.com/questions/2767718-i-received-a-letter-from-merrill-lynch-saying-there-is-an-...

Tom Young

EDIT:  THIS QUESTION WAS ASKED WHEN 2014 INCOME TAX RETURNS WERE BEING PREPARED.  SINCE THE PROGRAMMERS SEEM TO CHANGE THE STOCK SALES INTERVIEWS EVERY SINGLE YEAR THE STEP BY STEP PROCESS LAID OUT ABOVE PERTAINS ONLY TO THE 2014 PROGRAM.  THE TAX CONCEPTS HAVE NOT CHANGED BUT THE PROGRAMMING ALMOST CERTAINLY HAS.

[sarvoth]

Thank you thank you thank you! This pretty much saved me from having to  go to a professional and pay more for my tax return. Thanks again!

[dev51]

What if no 1099B form as been issued?  BNP is the broker but have not issued a statement.  But I used a sell-to-cover on shares (not options) given to me by my employer.  The full value of the shares are on my W2 and the sell to cover is not on my W2, but is on my paystub.

[JimboBigbelly]

I hope you got an answer by now.  I think Tom's answer above covers this.  The reason there is no 1099B is because the stock wasn't  sold, as you indicate, but was "withheld" by your employer.  That amount is divided in some ratio and is put in different buckets, like Federal, State, Medicare etc withholding.  So you will see the full value of the RSU in your W2, and if you do the math and know your tax rate for all the buckets, you will see that amount on your paystub distributed throughout .  If you go to your employer's payroll department, you can get that distribution, but it doesn't matter because it's automatically done for you. You get easily confused because the box you check is to sell the stock, and in fact it's not (usually) sold at all because it's usually cheaper for the company to keep that stock and use it for a future RSU vestment.  TurboTax will calculate the rest of what you  owe on the RSU because it's in your Wages bucket

[JimboBigbelly]

Bu the way, Tom's link isn't available anymore, it has either been archived or deleted.

[shanxin136]

Tom's link is not available anymore. Could someone fix it? Thanks

[AnnetteB6]

The link you reference cannot be retrieved and fixed after it has been archived.  Most likely the information was outdated and removed to avoid any confusion with the current year TurboTax program.

@shanxin136

[kstr65]

My situation is pretty much as discussed below, but I'm still confused. My employer reported the gross amount of my RPU's Restricted Performance Units (I'm assuming same as RSU's), on my W2 in box 1. I pulled my vested sheets for 2020 it shows 76.5331 total units lapsed, 24 units withheld for taxes = Net units 52.5331. I have not received a 1099B because like you said shares were withheld and not sold by me. I entered the amount in box 1 (gross RPU) on the W2 as ordinary income.

1. Since I have not sold stock it was withheld is there anything else I need to do besides reporting the amount in box 1 on my W2 as ordinary income? 

2. Is there anything else I need to check to show this income is from my employer incentive program (a box or anything). 

3. Last year I entered it just as ordinary income and noticed the amount shows up as wages on my Social Security Medicare wage statement (since I retired a couple years ago, I noticed that my SS wage statement is the exact amount of my RPU gross amount from box 1 on the W2 for the past two years). I hope this is not incorrect. 

I feel like I'm missing something big.  Am I also correct you only risk being double taxed if you actually sell any of the net units and enter the 1099B incorrectly?

Thanks in Advance (Dazed and Confused)

[ThomasM125]

@kstr65 You don't need to do anything but report your W-2 since you didn't receive a form 1099-B.

You are correct, you could be doubled taxed if you sold some shares and received a form 1099-B. Often, the 1099-B form won't reflect the cost basis adjustment that results from income being reported on your W-2 form. In that case, you need to change the cost basis reported on the 1099-B and that is easily overlooked.

[StudentKevin]

The law for non-public or not easily traded stock grants changed with the Jobs act.  You can read about it here

https://www.thetaxadviser.com/issues/2018/apr/private-company-equity-grants-sec-83i.html

If the poster works for a publicly traded company, don't worry.  If not, he should go back to the pay stub for that period to make sure FICA at least was withheld and record the declared value of the stock on that date.  It would be a good idea to keep that pay stub and the previous one for backup info for the IRS.

[kstr65]

Thank you for the link for additional information on the subject of RSU’s.

[kgreg99]

My situation is close to this but (Sell to cover) and things look good for my 6 entries except for two.

Two entries a capitol gain even though I've addressed them the exact same way as the others. They shouldn't because I've set the Box 1d (proceeds) and 1e (Cost basis) to be the same at $7386.42

It's saying Box B Short term sales with cost basis Not reported to the IRS in $4889 (this number includes the other problem grant).

The situation for one is: Granted 5 sh, sold 3 to cover so tax held was $7386. That all lines up with the process except when I'm done its saying I have a $2455 gain. Why?

One more question. What should I choose for holding period? For now, I've selected Box X Unknown holding period, then "S"=Short-Term (One year or less)

Thanks in advance for any inputs.

[MarilynG1]

@kgreg99 Your Cost Basis would not be the same amount as the Sales Proceeds.

Click this link for more info on calculating Cost Basis of RSU Stock.

If you held the shares for over a year before selling, use 'Long Term' as holding period.  If not use 'Short Term'. This should be on your 1099-B. 

If you determine your correct Cost Basis, you can enter your 1099-B as a regular stock sale.

Check the box to indicate you need to change the Cost Basis, and enter the correct amount. 

This link has info for How to Enter 1099-B. 

See detailed answer from @TomYoung above.