RSU Grant and double taxation?

[ammad_h]

I have RSU grant of 50 shares and 16 were sold to cover taxes. Remaining 34 I sold and now amount is  appearing on my W-2 along with my annual salary.  But there is no entry on my W-2 for 16 shares that were sold to cover taxes in tax section. Am i paying double taxes? First at time of vest and second time as it is added on W-2 caused higher tax bracket but no information of 16 shares that were vested to cover tax?

[TomYoung · Accepted solution]

ANSWER IS CORRECT FROM AN INCOME TAX STANDPOINT BUT STEP BY STEP INSTRUCTIONS ARE ONLY APPLICABLE TO THE 2015 PROGRAM AS THE DEVELOPERS CHANGE THE INTERVIEW FLOW EVERY SINGLE YEAR.

At this point you are being double taxed.  But the issue is not that you have no place to report the 16 shares sold "for taxes." 

The cash raised through the sale of shares "for taxes" is passed back to your employer, who pays the government, and then reports those taxes as "withholding" on the W-2.  So the taxes have been reported, and you can't report them again.

The problem is that you are using the wrong basis for the sale.

Your basis in the 50 shares is: (per share fair market value used by your employer at vesting) x (50 shares) and that's exactly what has been reported to you on your W-2 as the "compensation."  So if you don't use that basis then, yes, you're effectively reporting the income twice: once on the W-2 and then again as an overstatement of gain on sale.  Your per-share basis is the same as the per-share "FMV" figure used by your employer.

Starting in 2014 brokers no longer had to report the "compensation" element of basis on the 1099-B, just the "out of pocket" basis.  For an RSU that's typically $0.  So you most likely need to report a basis for the sale of (34) x (per-share FMV used by the employer.)

Using the spreadsheet-like "fill in the boxes" default TurboTax 1099-B entry form, enter the 1099-B exactly as it reads.  Tick the box next to "This sale involves an employee stock plan (including ESPP) or an uncommon situation."  Click the blue "Start Now" button that shows up and then click the radio button next to "My 1099-B has info I know isn't right, or it has extra info I need to add."  That will allow you to add the missing amount of basis and TurboTax will show all this correctly on Form 8949.

Tom Young

[ammad_h]

There are two box appearing one is for 16 shares used for taxes and other is for 34 shares which i got. Do i need to click "This sale involves an employee stock plan (including ESPP) or an uncommon situation." on this box for both of them or for just 34 shares which i got.

[TomYoung]

I'm not sure what you mean by "two boxes" since I don't know what you are referring to.

If you got a 1099-B for a sale of stock then you enter the 1099-B.  That's the mantra.

The broker, maybe, sent you all kinds of stuff, 1099-B's, "statements", etc. but what you want to focus on is the "1099-B."
 
Whatever sales you report should be adjusted to the correct basis.  So if you report a sale for 34 shares and a sale for 16 shares then you need to correct the basis for both.

[ammad_h]

Hi Tom, Two boxes mean when i entered or Retrieve 1099-B data from E*Trade account, Two drop down appears, one is showing 16 shares vested automatically by employer to cover taxes. and other  box or Line it is for 34 shares i vested on next day by myself. So basically two boxes or line or records are appearing. Do i need to perform  "My 1099-B has info I know isn't right, or it has extra info I need to add." for Both shares meaning for 16 and 34 shares respectively?

[TomYoung]

The process described applies to all sales of this stock that's reported to you on Form 1099-B.  You use the CORRECT BASIS for ALL SALES of this stock.  That applies to a "same day" situation and that applies to a sale of this stock - if you had any left - that might occur 20 years from now.

[brentbateman20]

Thanks for documenting guys. @ammad_h, I'm in a similar boat. My broker reported to me on my 1099-B both sales my employer made to cover the taxes for my grant & sales I made to trade the remaining stock. When I report the FMV (price day of grant x # of shares) to each of these lines from my 1099-B into my Turbotax form, ultimately, my tax liability goes up a crazy amount.

Considering that I LOST MONEY on the sales (stock price dropped between when I acquired and sold), I would think that I'd be looking more at a refund rather than an amount owed to fed & state.

ex... mockup from 1099-b using @ammad_h 's stock amounts

1a.   1b date acq     1c Dsold     1d Amt    1e CostBasis
16     5/15/15           5/18/15       160          160
34     5/15/15           9/18/15        170         340    
*assuming stock stayed the same price between 5/15/15 and 5/18/15. Then stock dropped in half by 9/18/15.

I followed the steps listed above (where I click the "This sale involves an employee stock plan (including ESPP) or an uncommon situation.")...

It seems like there should be a flag or a field in 1f to indicate that the 16 were sold for taxes.

Any thoughts? @TomYoung
-BB

[TomYoung]

The only thought I have is that you didn't do EXACTLY what I suggested that you do.  That is, my thought is that you DIDN'T follow the path of simply correcting the basis from the $0 reported by the broker to 160 for the first trade and 340 for the second trade if your tax liability went up a "crazy amount."  My guess would be that instead of simply correcting the basis you, instead, went into the RSU step by step interview, and did something wrong like, maybe, telling TurboTax about the SAME LOT VESTING twice, once for the sale of stock "for taxes" and then again for the sale of stock "for cash" and then telling TurboTax "No" when TurboTax came back with its own calculation of compensation created by the vesting and asked if this was the amount reported on the W-2.  Of course that's just a guess as you've based your judgement on the "correctness" of the entry by focusing on the "Refund -O-Meter" instead of looking at WHAT CHANGED in your actual income tax return.


DELETE those trades.  

Enter them exactly as they read off the 1099-B, bad basis and all.

Tick the box next to "This sale involves an employee stock plan (including ESPP) or an uncommon situation."

Click the radio button next to "My 1099-B has info I know isn't right, or it has extra info I need to add."

Tick the box next to "The Form 1099-B shows an incorrect cost basis."

On the page "Correcting Cost Basis from Form 1099-B" enter the correct basis in the box "Adjusted Cost Basis (if applicable)."  For the first trade you'd type in "160" and on the second trade you'd type in "340".

That will add the missing amount of basis and TurboTax will show all this correctly on Form 8949.

[jamie-pickett]

I have a slightly different situation... my paystub shows the sale to cover taxes for my RSUs in additional deductions  as Incentive Taxes and that tax is not included in my W2.  I only got a 1099-B from my broker where I sold them, but not one from the RSU management company where the sale to cover happened.  I used the vested grant basis after sale to cover for my cost basis for the broker 1099-B.  Am I not able to show the significant tax already paid on the RSU income since it's not included in my W2?  or is my W2 wrong?

[TomYoung]

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.

[TaxHelp4]

I have a similar question for filing 2016 Taxes. 

@TomYoung: Can you please confirm if the steps are same  or update them for 2016?

[TaxHelp4]

I have a similar question for filing 2016 Taxes. 

@TomYoung: Can you please confirm if the steps are same  or update them for 2016?

[TomYoung]

Nothing has changed from an income tax standpoint, only the TT interview has changed as it does EVERY YEAR.

This year you enter the 1099-B exactly as it reads and then click the blue "I'll enter additional info on my own" button.  On the next page enter the correct basis in the "Corrected cost basis" box.  The correct basis is: (# of shares sold) x (per share basis for that lot.)

[yuri-weinstein]

I have a similar situation for 2015 taxes and would like to clarify it.

My RSUs were vested in 2015 and part of them was used to cover for taxes.

I got W-2 which shows all.  Now when I use Turbo Tax I electronically download W-2 from my employer and aslo 1099-b from the brokerage that manages RSUs, and after the brokerage download my tax liability doubles.

Any suggestions?

[TomYoung]

Yes, go back and read the original question and you'll see that you have the EXACT SAME issue.  Then carefully and slowly read my answer.  The 1099-B is reporting the WRONG BASIS.