RSU cost-basis not calculating correctly

[Anonymous]

Background:

I have 3 RSU vested, 2 are sold to cover taxes, 1 remains unsold in the brokerage.

All 3 are reported to IRS in my W2 income.

The brokerage does not report short term sale or cost-basis to IRS.

Situation

When entering in TurboTax Premier through step by step it appears it is calculating as if I sold my 3rd share in addition to the 2 (covered for taxes). This results in an incorrect cost basis and reporting 1 RSU as additional income on top of what is reported in my W2. I've gone through the step by step many times and I can only think TurboTax assumes my 3rd share is sold and is messing up the cost-basis or there's no where to adjust my cost-basis equal to the number of shares sold to cover taxes (2) as it keeps using 1 share as the cost-basis.

Shouldn't the investment income section show $0 income from stock sales?

Otherwise it appears I'm being double-taxed.

Schedule D Cost Basis: Proceeds is correct, but cost-basis is incorrect (half of proceeds).

The ESP Comp Wks: correctly filled out and checked "included in W2"

Emp Stock Wks: RSU shows 3 shares vested in #25(b) , 2 shares withheld in #25(g); #29 shows I sold 1 share.

This is the strange worksheet where if I change #25(b) to 2 shares vested, I get taxed even more (0 sold in #29), if I change to 4 vested it's changed to 2 shares sold in #29 (which looks right overall, but the 4 shares is wrong).

1099-B Wks: The Cost-Basis is again the wrong value here and guessing it's influencing the above. No how I change the step-by-step the cost-basis is always off and I'm inputting my 1099-B as it is reported.

Any suggestions? TIA.

[JimboBigbelly · Accepted solution]

If shares were withheld, they were not sold.  Your broker won't indicate a transaction on the withheld shares.  What happens to them is they go back into the company's pot of stock that they can then use for other reasons, like loan guarantees or employee/management incentives.  The company took the value of that withheld  stock at vesting time (usually end-of day, you can validate this if you look at your pay stub and note the difference between that one and the previous pay period) and dumped that into your tax bucket which gets reported on your W2.

The company added the total value of the RSU to your income.  Again, you can validate that by looking at your pay stub covering the vesting date,  and comparing it to your previous pay stub.  So your tax is calculated by TT automatically.  Since this is income, there is no capital gain or loss until you sell the remaining share.  So you don't enter it at all in TT.   When you sell that third share, the cost basis at that time to used to calculate the gain or loss on that share is the value at vesting date.  Because you will already have paid the tax on the full value of the RSU when you file your taxes.

If you haven't figured it out yet, you should save your two pay stubs, the grant and vesting documents, and you can call your broker to get a breakdown of what buckets that the withheld shares were put in, like FICA bucket, Medicare bucket, State tax bucket, etc.   

.  

[JimboBigbelly]

I forgot to say:  if the amount of money withheld is lower than your average tax rate calculated last year (it probably is) on the value of the RSU, you might want to consider doing a quarterly tax payment.  Probably too late now, so you should consider it next time.  There's a lot to consider here.  For example, if you calculate the penalty and find it is less than you will make in the market as it goes up, you might want to forget about the quarterly payment and keep the money in the market.  But like going to Las Vegas and betting, you might lose your money if the market goes down.

[Anonymous]

Thanks @JimboBigbelly for the details; I fortunately do have detailed tax report of the RSU granted and it shows the tax reporting paid for the total amount from the 3 vested shares.

Are you saying when TT asks me the "Total Shares Vested/Released" under "Enter Vesting (or Release) Information" step, I should put 2.0000 Vested/Released and 2.0000 Shares Withheld, instead of 3.000/2.000?

Doing the above corrects the cost-basis to my expectations, but how will I let the IRS know I already paid taxes on the third stock when I do sell? Or does it not matter because the 3 RSU were added as income my W2, the taxes were calculated from that, and any difference from the cost-basis amount will determine the amount from capital gains(loss) to be taxed at the time of sale?

[JimboBigbelly]

Yep.

When you sell the third block you'll enter the vesting price as the cost basis since you've already paid the tax on that amount.

[CWB]

If my 1009B shows the line item for the shares withheld/sold to pay taxes but I held the remainder then do I need to account for it on my tax return? If so, then how since TurboTax premiere doesn't have that option until I sell the remaining shares?

[JimboBigbelly]

You can do it 2 ways.  The instructions for Schedule D are not clear for the 2020 tax, so you can choose.  Since the total gain for the RSU is already updated in your wages on your W2 (you should check this by looking at your wage statement for the pay period prior to the RSU's vesting and the pay period of the RSU's vesting and maintain both wage statements for your records) the tax is already owed if you do nothing for your schedule D.  That is one option. 

The second option is to enter the RSU on schedule D and adjust the cost basis to the same amount as the RSU value.  That will generate no additional tax obligation.  The tax obligation was already created when your company rolled  the value of the RSU up into your wages bucket on your W2.  Like option 1, you should verify that your company did roll the entire value of the RSU into your wages bucket, as in option 1.

[JimboBigbelly]

Oops, there is one more caveat.  If the RSU is generated by a private company, and is not tradeable, or for other reasons, is not sellable, other rules come into play.  In which you should consult a tax consultant because it gets really complicated, and there's not enough room or time for me to explain all the rules/caveats.