RSU LT stock sale - cap gain calculated incorrectly

[wq2]

Hi, in September 2021, I sold RSUs that vested in April 2020, so it's a long-term capital gain.  When I enter the basis in Turbotax, it's calculating my federal tax at ~23.8%, rather than the long-term cap gains rate of 20%.  I can't figure out why this is the case - can anyone tell me why this is happening?  I've entered 'long-term not reported' in the 'tell us about your 1099-B sale' screen.  

Then, when it asks if this was a company sale, it asks a bunch of questions about the vesting, which was during 2020, the distribution was reported as ordinary income during 2020 with tax w/h, so I'm 1) not sure why I'm being asked to do it here for 2021, and 2) it's confusing because it was all reported in dollars, this is asking for shares.

Any help/insight here would be greatly appreciated - thanks!

[DavidD66]

First of all, I would start by deleting what you have entered so far.  Re-enter the transaction using the value of the stock on the day the RSU vested as your cost basis (this is the amount that was added to your W-2 as ordinary income).  Use the proceeds reported by your broker on your 1099-B.  When asked about Employee stock, answer no so you won't be asked all of the related questions. In your situation, there is no reason to go through that interview.

You may owe an additional 3.8% tax called net investment income tax (NIIT). But you'll only owe it if you have investment income and your modified adjusted gross income (MAGI) goes over a certain amount.Those statutory threshold amounts are:

• Married filing jointly — $250,000,
• Married filing separately — $125,000,
• Single or head of household — $200,000, or
• Qualifying widow(er) with a child — $250,000.

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.

[wq2]

Thanks for the answer, maybe I misunderstood the 3.8% - I thought that applied only for cases of certain investment income (per TT link below).  I'm married filing jointly, over $250,000 - does that mean any income like this is subject to the additional 3.8%?  On the same link, it says MFJ w/over $501,600 is 20%.

per this page https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-short-term-vs-long-term-cap[prod...

 "Another major exception comes from the Net Investment Income Tax (NIIT), which adds a 3.8% surtax to certain net investments of individuals, estates, and trusts above a set threshold". The explanation on this page implies that the NIIT doesn't apply for all cap gains.  I don't have lots to report here besides ordinary income and RSU sales (very little interest income, nothing else). 

Thanks!

[RaifH]

Yes, any investment income is subject to the NIIT if you are a married couple filing jointly with income over $250,000. It is assessed on the lesser of your total investment income or the amount by which your income exceeds $250,000.

Investment income includes capital gains from sales of stock and other investments, rental income, interest, and most other income that is not derived from wages, self-employment, unemployment, or retirement income. The IRS has a very thorough Q&A  about the net investment income tax.

[wq2]

Thank you.  Just in case I'm missing anything, the rates in the 'guide to cap gains' I linked to are completely incorrect (i.e. MFJ $500K+ 20% cap gains)?

[RaifH]

The article refers to the NIIT as a "surtax," which is a tax on top of the tax. The capital gains rates are correct, you are just also hit with the NIIT once your gross income exceeds $250,000 for joint filers.  

It's not quite accurate just to say MFJ $500k is subject to a 23.8% capital gains tax because it depends on the source of their income. If they make $100k in wages and $400k in capital gains, then 150k of capital gains will be at the capital gains rate and 250k will be at capital gains + NIIT. If they make $400k in wages and $100k in capital gains, then all $100k will be at capital gains + NIIT. That's why the NIIT is off-the-charts, or a surtax, or however you want to refer to it. 

[wq2]

thanks!  Wish you had written that article, it's pretty incomplete without that part