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khsharara
Returning Member

RSUs sold to cover taxes show a gain sent to the government, why am I being taxed on this gain?

  • On Jan 1, I had
    • 100 RSUs vest with a cost basis of $1 each
      • 70 RSUs were deposited in my account and are never sold
      • 30 were held by the broker to cover taxes
  • On Jan 5
    • The stock value increased from $1 to $1.10 and the broker sold the 30 RSUs at $33 to cover taxes. This $33 dollars went straight to the government
  • During tax season
    • Broker sends 1099-B that reports a short term taxable gain of $3 for the 30 RSUs they sold to cover taxes

 

Question: If the government already collected $30 basis + $3 gain on Jan 5, why am I being taxed on the $3 gain that was already sent to the government? Am I missing something?

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4 Replies
TomD8
Level 15

RSUs sold to cover taxes show a gain sent to the government, why am I being taxed on this gain?

You do have a taxable capital gain since the shares increased in value after the vesting date, but when the vesting proceeds are reported on your W-2, you'll be credited for the full $33 (not just $30) of withheld taxes.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

RSUs sold to cover taxes show a gain sent to the government, why am I being taxed on this gain?

Just to expand on your question:

  • Your RSU stock vested on Jan 1st.  Based on your facts you will then have $100 of ordinary income reported on your W-2.
  • It is very typical that some of the RSU stock is sold to cover the tax on the $100 of income.
  • In your case, you sold 30 shares to cover the estimated income tax on the $100
  • In general, these events occur on the same day.  In your case, there was a few days in between the vesting date and the sale date.  As a result, your stock increased by 10 cents a share which makes the selling price $33.  Your basis in the shares sold is $30, resulting in a $3 gain.
  • Based on your facts, the brokerage statement appears correct.
  • You will then report the $33 on your return as withholding (this should be included in your W-2).  Keep in mind, this is just an estimate of the tax implication.  Whether this covers the entire tax liability depends on more than just this transaction.  The real impact is the true tax bracket you are in.
  • In conclusion, no double tax based on the current facts.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
magonz0
Returning Member

RSUs sold to cover taxes show a gain sent to the government, why am I being taxed on this gain?

What if the stock sold to cover Federal Tax is not reflected on the W2 tax withholdings? How do you account for this when filing?

khsharara
Returning Member

RSUs sold to cover taxes show a gain sent to the government, why am I being taxed on this gain?

I was wrong about the Jan 5 activity, this is actually what happened, and now everything makes sense:

  • On Jan 5
    • The stock value increased from $1 to $1.10 and the broker sold the 30 RSUs at $33. Of those, $30 went to the IRS, and $3 were deposited as cash in my brokerage account.
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