RSU Grant and double taxation?

[yuri-weinstein]

Thanks Tom I spoke with Fidelity and I feel I got what is going on.
The question is - why it's so bad reporting and 1099 and W-2 reconciliation, omg ?!

[jdub29]

Similar situation here - 345 RSUs vested, 93 shares sold to cover taxes. The total vested dollar amount is reported in Box 14 "other" on W2 and therefore already taxed. When I follow these instructions manually based off 1099B showing two sale line items - one for 93 shares to cover taxes a few days after the grant vested, and the other for the remaining 252 shares I sold 12/31 after leaving the company, I get to the TT summary and the numbers all look correct and with the correct short term gain amount. The adjustment amount matches box 14 "other" on W2, however, the next TT page shows the W2 Disposition amount calculated by TT as exactly double what box 14 "other" says, so it's being double counted by TT - but no way to indicate to TT it's not correct. Do I delete the line that indicates my shares sold to cover taxes because it's already reported?  Doing that still reports the correct gain, and makes the W2 disposition the correct amount, but I'm afraid not to include the 93 shares 'sold to cover' tax portion. Help!

[rohanparolkar]

I think @TomYoung is over explaining.

The answer is, the $ from the 16 shares is already included in Box 2 on your W-2. Check your pay stubs. When the shares vested, you got a stub saying that amount was for federal withholding, and if you add up federal withholding from all your pay stubs, it will equal the amount in Box 2.

@TomYoung is discussing a completely different point, if I can paraphrase what I think I understand and @TomYoung feel free to correct...

your Box 1e on your 1099-B might need to be corrected. Box 14 on your W-2 reflects the true cost per share cost basis. Divide the Box 14 amount by the total number of shares released (that is including the ones sold) and that's your per share cost basis. Then check "My cost basis is wrong" and enter the number of shares times the per share cost basis.

There's three possible outcomes:

- If 1e was reported $0 then yes, this will significantly reduce the tax owed.

- If 1e was reported as the value at the time of the sale, and:

-- the W-2 per share cost basis is higher, then the adjustment reduces your tax owed by the difference

-- the W-2 per share cost basis is lower, then the adjustment could actually increase your tax owed, in which case, I don't really know if legally you can be punished for not making that correction. @TomYoung?

[rohanparolkar]

Tom Young Level 12

‎June 7, 2019 3:03 PM

I'll bet you a dollar and give you 5 to 1 odds that the taxes ARE included in your W-2.  The "extra" taxes caused by and RSU vesting are not separately disclosed to you on the W-2, they are just buried in with all other withhholding.  Check with your payroll department.

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This is the answer everyone is looking for. The OP was not asking about 1099-B.

[rohanparolkar]

I'll bet you a dollar and give you 5 to 1 odds that the taxes ARE included in your W-2.  The "extra" taxes caused by and RSU vesting are not separately disclosed to you on the W-2, they are just buried in with all other withhholding.  Check with your payroll department.

[rohanparolkar]

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[hdt2ski]

Not all companies issue a pay stub showing the taxation.  Mine did not.  

Is there an update for the 2019 tax year we're working on now for the instructions? I am trying to put the shares in that were sold for taxes but the software is acting like it's not seeing that entry at all, as it says 562 share remaining unaccounted for.

[rtbtxxiao11]

I followed Tom's advice, just reported remaining  the sale of (34) ( in this example) x (per-share FMV used by the employer.), did not include the shares withheld for pay of the tax.  Followed step by step, the calculations by Turbo Tax wil be $0 gain or $0 lost.  This makes a sense to me since those sales has been added in W2 as part of income.  

[DSSS1234]

Hello TomYoung,

I tested by putting $0 and $12,000 in the cost basis for RSU, but there was no difference in the Federal Tax Due.

I did this for other two RSUs, but still the same: no change in the Federal Tax Due. 

So, I don't think cost basis reflects double taxation. 

[DianeW777]

It's not clear what you mean by double taxation.  The 1099B generally does not report the correct cost basis for RSUs because they do not account for the vested date value included in your wages for each appropriate year.  When a sale occurs then the cost basis generally needs adjusted to account for the correct cost basis fair market value (FMV) included in the wages at the vesting date.  This cost basis calculation must be tracked for each block of shares on each vesting date. 

Sales always use the first in-first out method unless you specifically state which shares you want to sell.

As long as you know you have entered the accurate cost basis for the stock sale, that's what counts, and your gain or loss will be accurately reflected in your taxable income.

Please update here if you need further assistance and one of our tax experts will help.

@DSSS1234

[rohanparolkar1]

@DSSS1234

Also note, when the RSUs vest and you sell to cover taxes, they withhold Federal Income Tax AND Medicare and Social Security as well. But Medicare and Social Security withholding doesn’t count towards the Federal Income Tax owed. This is why the numbers may not add up initially and it may seem like a double tax. We are indeed paying a much higher tax rate than the federal income tax rate alone.

[DSSS1234]

To understand what the accurate cost basis is and how it will impact the federal tax due, I tested two extreme values, which are $0 and $12,000. However, there is no change by these cost basis change. What it means is that the (correct/adjusted) cost basis is not influencing anything and there should be other way to report tax correctly, avoiding double taxation. Is this clear?

[ThomasM125]

Capital gains are not taxable if your taxable income is below $40,400 single or $80,800 married filing joint. So, just because you are changing the cost basis on an investment sale and don't see the tax change, it does not mean that you are not changing the income reported on a tax return.

@DSSS1234

[DSSS1234]

So, As I understand, the way to report fed and state tax withhold from RSU is to put the correct cost basis. Now, if the correct or incorrect cost basis doesn’t change fed tax due, what does this mean? This means that there is no way to report tax withhold from RSU and thus, I pay double tax for selling RSU, correct?

[MarilynG1]

No, your are not double-taxed for selling RSU stock. 

The Federal tax withheld is added to your W-2, so you are getting credit for it when you report your W-2. 

The 1099-B reports the gain/loss on the FMV on the vesting date to the FMV on the sale date. 

If you don't enter the correct Cost Basis for your 1099-B, you'll end up paying more or less Capital Gains Tax on the proceeds than you should.

This may or may not affect your total refund, depending on your other income.

Click this link for more info on How Capital Gains are Taxed.

[DSSS1234]

Actually, this is a repeating question. Someone already asked this question and the answer was “correct cost basis” at that time.

Now I am asking the same/similar question.

Let’s say I sold RSU $65,000.00 and $35,000.00 is tax withhold out of the total $100,000.00. The $65,000 is already taxed and it is added to the total income. Let’s say the total income of the year is $240,000.00 including the RSU, $100,000.00. As the RSU portion is already taxed, the rest $140,000.00 only has to be taxed now, correct? If the tax bracket is applied for $240,000.00, it will become double taxed, right?

Per the existing Q&A, they said that the way to report RSU tax withhold is to put the correct cost basis for RSU. However, I tested and put in $0 and large number like $100,000.00, there is no difference in the fed tax due amount. So, what is the correct way to report the RSU tax withhold?

[TomD8]

@DSSS1234 --

Taxes withheld by your employer at the time of RSU vesting are normally included in the Box 2 amount on your W-2.  Employers normally withhold at a flat 22%.  This web reference has a good explanation:

https://www.thebalance.com/rsus-on-form-w-2-3192939