Reporting Cost Basis for Unvested RSUs (sold to cover)

[jcantella48]

I've reviewed several threads talking about RSUs and 1099-B forms, but I want to make sure I'm putting all the pieces together correctly. I imported my 1099-B form from E*Trade but TurboTax keeps telling me to review the cost basis (box 1e) for each of the reported sales. The imported forms have the cost basis listed as $0.00.

To give the context, I receive several awards of RSUs since starting with my employer 3 years ago. However, none of the awards have fully vested at this point. I have not taken any action with the shares, nor have I purchased or received any other type of shares. I have always opted to "sell to cover." Since I did not purchase any of these stocks with my own money, it is correct to leave the cost basis $0 correct? 

I appreciate any insight, my employer has not been helpful with this.

[DavidD66]

Do NOT leave your cost basis as Zero.  If you have sales reported on a 1099-B and you have made elections "sell to cover" then some of your RSUs have vested.  Moreover, you have used your money not to purchase them, but to pay the tax on the units that have vested.  When RSUs vest, the entire value (based on the market price at the time) of the vesting RSUs becomes ordinary income. It's treated the same as a cash bonus would be treated.  The total amount is included in your income (and reported in Box 1 of your W-2) and tax withholding is required.  Since the RSUs are not cash, shares have to be sold to pay the income tax withholding on the value of the entire lot that vested.  Because the value of the RSUs is included in your income and taxed accordingly, your cost basis in the stock from the RSUs is that same amount.  

So the cost basis of your shares that were "sold to cover" the tax withholding, as well the shares from that lot that weren't sold is the market price on the day of vesting, which is also the amount included in your income.  So, if you had 100 shares vest with a market value of $10, you would have income of $1,000.  You cost basis in those shares would be $10.  If $35 shares were sold to cover at $10.50 (due to market fluctuations), you would have a short term gain of $367.50 - $350 or $17.50.  Your remaining shares would have a cost basis of $10 per share.  And since the value of the shares that were sold to cover was income, it was your money from the sale that was used to pay the tax withholding.  

FYI, the 1099-B for the sale of stock from RSUs is almost always wrong, or missing.