RSU and W2 compensation income discrepancy

[ajabon]

I am running into an issue with the "Enter Vesting (or Release) Information" section of the RSU step-by-step.

Turbo instruction clearly states "If you sold shares from the same group of RSU shares on different dates, you'll need to allocate a portion of the total shares and the shares traded for taxes to each sale".

In my case, I was granted 50 shares, and 10 shares were automatically sold (sell-to-cover), while the rest of the shares I did NOT sell. It seems like TT only uses the information in "Total Share Vested/Released" to calculate compensation income.

If I enter 10 in the "Total Shares Vested/Released" section that would work but TT's compensation income calcuation will be wrong because it has no idea how many shares were actually released (50). The end result is that TT's compensation income calculation will be < W-2.

If I enter 50 in the "Total Shares Vested/Released" section, then the compensation income calculation will be correct, but what do I put here when I sell the shares in 2022? Do I put zero for "Total Shares Vested/Released"?

[GeorgeM777]

Because it appears that you did not sell the 40 shares, there is nothing for you to report on your 2021 tax return.  Because RSUs are a form of compensation, your employer was obligated to sell a certain number of the vested shares to comply with their withholding requirements.  While your employer's obligation to withhold taxes was triggered upon vesting, your obligation to report any gain or loss will not be triggered until you sell the shares.  Thus, until you start to sell some or all of the shares, there is nothing to report on your 2021 tax return. 

@ajabon

[ajabon]

@GeorgeM777  Thanks for replying. I understand where you are coming from, but I still have to put something down when TT asks me those questions.

TT adds the value of "total number of shares vested" across all transactions for each lot. If you sell all the RSUs you receive in the same calendar year that you receive them, the total number of shares vested will add up correctly (all sell-to-cover shares + remaining shares) and match what your employer will report on W-2.

If you don't sell everything in the same calendar year then you either have to specify the total shares vested across the transactions you do have, and this forces you to put zero as total shared vested on future transaction to get compensation income to match up with your W-2 reporting.

OR

You specify the actual number of shares sold as the total shares vested, per transaction. The problem here is that because TT does not has the "visibility" into the number of shares held but not sold, the compensation income it calculates will always be LESS than what your W-2 reports.

What is the "proper" way to fill this out? Would love to hear from the Turbotax community that have had to go through this.

[GeorgeM777]

You should not have to enter anything if you have not sold your RSUs.  To follow-up on the previous comments, the compensation income should not be less than what is reported on the W-2.  The value of RSUs is typically recorded in Box 14 of the W-2, which is labeled "Other."  There are no standard list of codes for Box 14, therefore employers are free to enter any description they like.  It's possible that on your W-2, you may see the value in that box followed by "RSU."

For example, let's say you have $100,000 reported in Box 1 as wages and $10,000 reported in Box 14 labeled as RSUs. The $10,000 has already been included in the $100,000 amount, so you don't have to add the RSUs in Box 14 to your wages when you file your taxes.

Given that your employer sold some shares to cover your tax withholding obligations when the RSUs vested, what amount do you have in Box 14 on your W-2?  If there is no amount in Box 14, that does not mean your employer did not include the value of the vested RSUs in your wages as reported on your W-2.  It may be helpful at this point to confirm with your employer whether the value of the RSUs are already included in Box 1 on your W-2.  Such value has probably already been included, but confirmation will remove any doubt.   

@ajabon