Taxation of vested RSUs and a change of state

[goyal_raj]

Hi,

I got some money from my RSUs (stock units) after the company I work for was sold in 2021 while I was a CA resident. I had opted for Sec 83B election and had not paid anything when the RSUs were granted 2 years back. I got the money while I was a resident of CA and no tax was deducted on it by my company. And then I moved to another state in mid August 2021. I am still on the rolls of the same company in CA but I live in a new state and work from there.

Would the entire amount I received be taxed in CA or also in my new state (the new state has state tax)?

Should I be paying advance tax on it now? If yes, entirely to CA?

Thanks,

RG

[TomD8]

"I had opted for Sec 83B election and had not paid anything when the RSUs were granted"

With an 83(b) election, you do pay tax when the RSUs are granted.

83(b) Election Definition (investopedia.com)

[goyal_raj]

Thanks TomD8.

I read the agreement that my company sent me at that time and it says that the subscription price of about XXXX shall be paid from the distributable reserves of the company and shall be entirely allocated to the share capital of the company. However, I did not pay anything to the company at that time. Does that mean that I should have paid tax on XXXX amount at the time that I was granted the shares and sent the 83b election to IRS? If yes, what can be done now?

And now that I have received the money after the sale of the company, I believe I have to pay capital gains on the amount I received minus XXXX. Is that right? Where do i report this income in Turbo Tax? And would this be taxed in the state where I lived when i got this payment or also in my new state?

Thanks for your help,

R

[ThomasM125]

The 83(b) election would have been made on your personal tax return in the year the shares were granted. It is too late to make that election now. You should have declared income equal to the value of the shares when they were vested. This was likely reported on your W-2 that year as wage income, so you probably already paid the tax on it.

The difference between the amount you receive from the proceeds less the value of the shares when they vested (the amount reported on your W-2 form) would be capital gain income on this year's tax return.

You report the proceeds in the Investment Income section of TurboTax, under Stocks, Mutual Funds, Bonds, Other. 

Since you received the proceeds when you resided in California, they would be taxable in that state. However, you will probably get a credit for those taxes in the state you now reside in, if they are also taxable in that state. 

[TomD8]

"The 83(b) election would have been made on your personal tax return in the year the shares were granted."

Just to clarify, an 83(b) election is not made on your personal tax return.  It's made by submitting a written "statement of election" to the IRS, such as this sample from Fidelity.com:

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/instructions-for...

The IRS used to require that a copy of the statement of election be attached to one's tax return, but that requirement ended in 2015.

https://www.proskauertaxtalks.com/2016/08/irs-eliminates-requirement-to-submit-copy-of-section-83b-e...

[goyal_raj]

Thanks ThomasM125.

My 83b election form says :

1. The fair market value at the time of transfer is 0

2. Amount paid by the undersigned is 0

3. Amount included in gross income is 0.

Does that men that the entire proceeds I received now are taxable? If yes, how did this 83b election help?

Thanks again,

RG

[RobertB4444]

Yes, that is what it means.  You will pay taxes on the entire proceeds that you received.

The election didn't help much, did it?  But it meant that you didn't pay any tax back then and it explains why.  You're paying those taxes now as well.

[goyal_raj]

Thanks Robert4444.

Where do enter these gains in Turbo tax?

If I enter it under Investment- Stocks/Bonds etc it asks me What type of Employee stock it is and the options are ESPP, NQSO, ISO, RS and RSU. In my company's documents it is mentioned as a Management Incentive plan and they call these preferred shares. So which type would these be?

When I selected 'RS' it did ask me about 83B election etc so may be that is the right one.

But it calculated a net investment income tax too. Is that applicable in my case?

Further, I had class B and Class C preferred shares. Should i report them separately even if the number was the same? I got a consolidated amount with no break down of the individual price on sale.

Thanks for your help,

[RobertB4444]

@goyal_raj  I'm not sure how your stocks were classified.  I would go with RSUs if I had to guess.

You may be subject to net investment income tax.  That is an income thresh hold thing and I don't know anything about your situation.

You should report them in the way that they are reported to you.

How to report RSUs on your tax return.

Net Investment Income Tax