This is mostly a PSA for TT 2022 users with RSUs, but hopefully Intuit can fix this in future versions of TurboTax. I can confidently say there is at least one bug, though whether it's a bug in the interview wording or the internal logic depends on your frame of reference, I suppose.
To set the scene, I worked a job that provided RSUs through E*TRADE. The E*TRADE platform includes both user-initiated trades and automatic sell-to-cover transactions in their 1099-B. For those unfamiliar, sell-to-cover means that when your RSUs vest, because they count as taxable income, enough shares are automatically sold to cover the taxes, hence the name. You're then left with the remaining shares in your account to do with as you wish. It's pretty much the equivalent of withholding from your usual paycheck, except to withhold RSU income, the brokerage of course needs to sell some shares.
According to comments like this one, I get the impression that folks from Intuit/TurboTax expect sell-to-cover transactions not to appear on the 1099-B. However, that's obviously not the case for E*TRADE, as there are many topics about troubles reporting RSU sales from them. I suspect that disconnect is the root of the issue I will talk about. I also think it's important to note that while issues are common with E*TRADE, I don't think there's anything inherently specific to E*TRADE about this post. Basically, if your brokerage reports sell-to-cover transactions in their 1099-B, this post is relevant to you.
The short version of the bug is that if your brokerage reports sell-to-cover transactions in their 1099-B and you follow the TT interview format as written, your taxes will be wrong.
Let's walk through the steps to show where it goes wrong:
- Import 1099-B from brokerage. In the relevant portion of the "Wages & Income" section, you'll see a list of all the imported stock transactions. In my case, under the "Needs Info?" column, all the RSU sales say "YES". This is because the adjusted cost basis was not reported to the IRS, but instead provided by the brokerage in a supplemental form.
- Click "Edit" next to one of the transactions with missing cost basis. Assuming the cost basis is indeed missing, Box 1e ("Cost or other basis") will be highlighted in red, prompting the user to put in a cost basis. I think you can technically put your adjusted cost basis from the supplemental form in this box and everything would just work out, but that seems dirty. The point is that this Box 1e should match what's on your 1099-B, which is $0.00 for all my RSUs, so I put $0.00 in the red box. You may or may not have other missing information. In my case, I also filled in Box 1b ("Date acquired") because it was empty, but do what makes sense for you based on your 1099-B.
- When you reach the screen that asks, "Was this a sale of employee stock?", select "Yes, this is stock that was acquired through an employee stock plan." It'll ask if you want to apply that decision to other sales. I said no because I wanted to walk through each one, but you should do what's appropriate for you.
- It'll then ask, "What type of employee stock is this?" Seeing as how these are RSUs, select "Restricted stock units (RSU)".
And this is the point which is not really correct. Because from then on, the interview will have you filling out information about grants, vesting lots, etc., to try to calculate the cost basis on its own. But not only will the rounding ultimately fail to match what is reported on the brokerage's supplemental film, it won't even let you adjust it later. The program seems to mistakenly assume that because we selected RSUs with cost basis $0.00, we must not have access to an adjusted cost basis. Even worse, the subsequent interview questions and calculations are based on the assumption that sell-to-cover transactions are not among the reported sales, so unless you just happen to know to delete them from the imported transactions, the calculations will be incorrect. As if that wasn't bad enough, when I tried going through that whole mess last year, I actually ended up getting C++ exceptions, so there is clearly a code bug as well. This is also one of the places where the software doesn't let you directly modify forms as a last resort.
SOLUTION
Thankfully, the fix is easy, though it was an absolute bear for me to figure out last year, and it even tripped me up for a bit this year, despite remembering I had an issue. The fix is:
- In Step 4, when it asks you, "What type of employee stock is this?", select "None of these." This option makes no logical sense, because we're literally talking about RSUs here, but hey, it is what it is. Selecting this option then allows you to check, "The cost basis on my statement is incorrect" and input the "Corrected cost basis" manually.
- Alternatively, in Step 3, you can select "No, this is not employee stock." That will accomplish the exact same thing. Again, this makes no logical sense, because yes, this is employee stock. But whatever.
PROPOSED FIX
Please, Intuit/TurboTax, fix this issue. Even if you don't think it's an internal logic bug (although you may really want to get the C++ errors checked out, lest you have vulnerabilities or undefined behavior messing up people's returns), surely you can understand how the interview wording can lead honest users astray.
My proposed fix would be to simply add a screen between the initial filling of the boxes from 1099-B (Step 2) and the questions about employee stocks (Step 3) asking if the user has an adjusted cost basis, potentially from a supplemental brokerage form, to report. This would sidestep the whole issue of trying to describe the sales, as the user is really just trying to put in what the brokerage already went through the trouble of calculating.
