RSUs vested but not sold

[sw324]

In 2016, I had several lots of RSUs vest, but none (net shares after taxes) were sold. I received a 1099 form from Charles Schwab. All the transactions shown are for the amounts sold for tax purposes. Box 14 of my W-2 indicates the gross amount of RSU compensation. Am I being double taxed?

[TomYoung]

"Am I being double taxed?"

If you simply enter the 1099-B as it reads you will be.  Brokers are not required to report anything but your "out of pocket" cost for stock acquired via an RSU and since your out of pocket cost is $0 mindlessly entering the 1099-B and filing the resulting income tax return would result in double income reporting: reporting the compensation income associated with the vesting on your W-2 and then overstating your short term capital gain based on the 1099-B.

Each "vesting" constitutes a "lot".  The compensation created by the vesting is calculated as:

             (GROSS number of shares vesting) x (per share "fair market value" used by your employer for that lot)

Accordingly your per share basis for any particular lot is the same as that per share fair market value figure.

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.)

Tom Young

(SINCE THE DEVELOPERS CHANGE THE SECURITY SALE INTERVIEW EVERY SINGLE YEAR I'LL NOTE THAT THIS ANSWER'S DIRECTIONS ON HOW TO CORRECT THE BASIS FOR THE SALE PERTAINS TO THE 2016 INCOME TAX YEAR.  I'M SURE THAT THE INTERVIEW WILL CHANGE IN THE YEARS AFTER THAT.)

[sw324]

Thanks Tom. What's still confusing me is that my 1099 form reports on only the shares sold for tax purposes. For example, let's say I had 20 shares vest, and 8 were sold for tax purposes (same-day sale). Say they sold for $10 per share. My 1099 is saying, proceeds of $80, cost basis of ~$80 for the 8 shares "sold". I continue to hold the remaining 12 shares. Are you saying that when I enter this transaction in TT, I enter $80 for proceeds, $80 for cost basis (or exactly as the form states), and then on adjusted cost basis I put in $200 for the gross amount?

[TomYoung]

"What's still confusing me is that my 1099 form reports on only the shares sold for tax purposes."

Since a 1099-B reports security SALES and if you only SOLD 8 shares, then your 1099-B is reporting the sale accurately.  Understand the the compensation income created by the vesting has absolutely NOTHING to do with selling any shares.  If you'd reached in you pocket and handed your employer ~$80 to pay for the taxes your W-2 would look EXACTLY the same as it does now, and you'd own 20 shares instead of 12.

"Are you saying that when I enter this transaction in TT, I enter $80 for proceeds, $80 for cost basis (or exactly as the form states), and then on adjusted cost basis I put in $200 for the gross amount?"

No, absolutely not.  Your per share basis is whatever your employer used to calculate the vesting on the 20 shares and, as I said "The correct basis is: (# of shares sold) x (per share basis for that lot.)".

I doubt that the broker is actually "reporting" the basis in the sense that it's being reported to the IRS.  Sometimes brokers do put your "real" basis on the paper 1099-B you're reading but also tell you that the basis is not being reported to the IRS meaning that the IRS will see "$0" in that field.

But here's the real deal: as long as you report the trade accurately from a gain/loss perspective you don't have to worry a whole lot about how you get there.  Report ~$80 as being on the 1099-B, even if it's not, or report $0 as being on the 1099-B and then adjusting to that ~$80; either way you end up with the exact same gain or loss and that's all that actually matters, not the "mechanics" of the actual reporting.

[sw324]

Understood. One follow-up - if I go through the "Guide me step-by-step" option (in other questions I have read that you don't recommend this; however, it seems to be only the way to specify that a transaction involved RSUs), eventually I come to a point where it asks me input my sales information. The prompt reads:

"Your RSU sale will have a portion of the shares reported as sold, and a portion that were traded to pay for the taxes withheld.

Enter only the portion reported as sold on your Form 1099-B. We'll ask for the shares used for the taxes a few screens later."

So, again, I have not sold any shares that have vested. Do I put zero here? The net shares I acquired? Or put the shares that were withheld for tax purposes (which seems to directly contradict the prompt)?

[TomYoung]

" if I go through the "Guide me step-by-step" option (in other questions I have read that you don't recommend this; however, it seems to be only the way to specify that a transaction involved RSUs)"

That's because there is absolutely NO need to do so, if you know your basis for the shares sold, and you should, at this point.  There is NO, NONE, NADA reporting to the IRS along the lines of "these shares were acquired via an RSU".  ALL trades, no matter how the stock was acquired, report themselves in the EXACT SAME fashion on Form 8949:

A description of what was sold, e.g., "Company XYZ stock"
A date of sale
Proceeds from the sale
A date of acquisition
Cost basis

As you can see there's nothing there - or anywhere else in your income tax return - that tells the IRS HOW you acquired the stock.

Sales of stock acquired via an RSU typically have a column 1g adjustment - because the broker "reports" $0 basis - but every single sale of stock acquired via an employer stock incentive program ALSO has that adjustment, as do many, many trades where you simply bought the stock from a broker, or were gifted the stock, or inherited the stock.

I advise people not to use the RSU step by step for 2 reasons: 1) it's not necessary if you know your basis and 2) people are frequently confused by the interview.  Case in point.

I've told you how to determine your per share basis and I've told you how to correct the basis if the broker reports $0 to the IRS and I've told you it doesn't really matter, mechanically, how the trade shows up in your income tax return as long as the gain or loss is (reasonably) correct.  If you've read other answers I've provided you also know that the typical same day sale - which this is - typically reports a small loss.  Not EVERY SINGLE TIME of course - sometimes the per share FMV used by the employer is slightly different than your per share selling price - but any answer that's within spitting distance of $0 gain or loss is "close enough".