What's the right way to enter info for a RSU sale (traded to pay tax) in 1099?

[wznesh6a]

Hi, I'm so confused about how TurboTax generates form 8949 for a RSU sale to cover tax in 1099. I came up with two examples I encountered. Both of them are under the scenario of in a RSU vest, a portion is traded to pay for the taxes withheld (happened on the same day of the vest), and another portion is left untouched (deposited in the broker account) for the tax year. 

I don't get why Example 1 results in a gain in form 8949 while Example 2 does not. Can any tax expert/TurboTax tech support explain what happened?

Edit: added a more extreme case, Example 3, which follows the same TurboTax calculation weirdness as Example 1. The more I exercise this TurboTax calculation the more I feel it is a bug. Can someone confirm or provide guidance?

Example 1

Lets say I have 19 RSUs vested this year, my employer traded 10 of them to pay for the taxes withheld, which is presented in 1099 as a sale. The rest of 9 RSUs are left untouched (deposited in the broker account).

When I enter vesting information as Total Shares Vested: 19, Shares Withheld to Pay Taxes: 10, the RSU result details page shows 9 shares sold and in form 8949 box 1 (h) shows the gain of a share market price.

(where does that 9 shares sold come from??)

Example 2

Lets say I have 14 RSUs vested this year, my employer traded 7 of them to pay for the taxes withheld, which is presented in 1099 as a sale. The rest of 7 RSUs are left untouched (deposited in the broker account).

When I enter vesting information as Total Shares Vested: 14, Shares Withheld to Pay Taxes: 7, the RSU result details page shows 7 shares sold and in form 8949 box 1 (h) shows the gain roughly to 0.

Example 3

Lets say I have 1 RSUs vested this year, my employer traded 1 of them to pay for the taxes withheld, which is presented in 1099 as a sale. No remaining RSU to sell (by myself) from this vest.

When I enter vesting information as Total Shares Vested: 1, Shares Withheld to Pay Taxes: 1, the RSU result details page shows 1 shares sold and in form 8949 box 1 (h) shows the gain of a share market price.

(the traded to pay taxes RSU should have taxed in W2, why it is shown as a separate sale and marked for capital gain here??)

[GeorgeM777]

Example 1 - Not sure why your return reflects that 9 shares were sold given that you did not sell them.  In TurboTax desktop, the RSU results page should reflect the shares sold to cover taxes and may also reflect that amount as compensation income.  Compensation income should already be included in Box 1 on your W-2.  Do you know if the shares that were sold to cover taxes were sold at a gain or loss?  Generally, same day sales are effected at the same price as the share price of the vested RSUs, so there is no gain or loss to report.  However, there could be a small loss to report if commissions were charged on the sale.  If you have such a loss because of the commissions, you could report such loss as a "plain vanilla" stock loss.  In other words, just enter as you would a regular stock sale without going through the RSU pages.

Example 2 - Because there was no gain or loss on the sale of the shares to cover the taxes, the market price for that sale must have been equal to the market price for the vested RSUs.  

Example 3 - You are correct in that the value of all vested shares, (which includes the shares that were sold to cover) should already be included on your W-2.  In other words, there is no need to enter this income twice.   If there was a gain on the sale of the one share, it is likely because when your firm sold that one share, the market price was greater than the market price for the vested RSU.  

@wznesh6a

[wznesh6a]

@GeorgeM777 thanks for the response! to add more context here: in all three examples, the shares that were sold to cover taxes were sold at a small loss, and for our case, it is shown as a normal sale in 1099-B, that's why it is confusing when Example 1 and Example 3 have a gain especially when using TurboTax's RSU related process there.

Sounds like the TurboTax's RSU related process is problematic for my case. Could you confirm a way out is to enter them as regular stock sales and adjust the cost basis correspondingly?

[GeorgeM777 · Accepted solution]

Yes, entering your RSU sales in the manner you describe is an option for you.  Because you know the cost basis (adjusted if necessary), dates of vesting and sale date (i.e., holding period), and proceeds you can enter these amounts into TurboTax and prepare an accurate tax return.  In connection with entering the RSU information, answer NO to 'is this employee stock ' which will avoid having to enter vesting info, stock sold for taxes, etc.  Then you can just enter the relevant information and treat these transactions as if they were regular stock sales.  

@wznesh6a

[almargahi]

Oh my god, this is the answer I've been waiting to hear. So, even though I sold RSUs (sell to cover and others I sold that were vested), I still don't necessarily have to answer 'Yes' to the question "Was this a sale of Employee stock?', correct? Basically, it wouldn't matter to the IRS as long as I put the corrected cost basis under the 'less common items', right? Almost everyone is making it sound like I 'must' answer 'Yes' - now, I did not sell any ESPP, and that is another reason to not answer 'Yes'. 

[GeorgeM777]

Yes, you can enter the sale of your RSUs as you would a typical stock purchase and subsequent sale.  You are correct in that if you know your cost basis, holding period, and proceeds, then you can enter these amounts into TurboTax without having to designate the transaction as the sale of RSUs.  

When RSUs vest, the value of the RSUs is considered compensation and thus, that compensation amount is included on an employee's W-2. Companies will typically sell some of the RSUs for tax withholding (referred to as a sell to cover) and the tax withholding amount should also be included on the employee's W-2. Sometimes companies will include the value of the RSUs in Box 14 on the W-2, and if your W-2 has an amount in that box, it may likely be the RSU value on vesting day and this will serve as your cost basis.   

@almargahi 

[emmitt0409]

Just making sure. So I think what we are saying here is that say if I sold $20k worth of RSU at the moment it is granted to cover my taxes, I should also put in -$20k in the "An adjustment for a reason that is not already covered" so that I don't get taxed again for this @$20k sale. Is that right?

[AbrahamT]

Exactly, if it's already included on your W2 as income shown in Box 1 and Box 14 respectively, then you are picking up the income already on that W-2 and you are being taxed at the ordinary tax rate. The sale if any which would be presented to you on a 1099B is for informational purposes only and should include a supplemental schedule with an adjusted cost basis equivelant to the sales amount.  

[sg11sg]

George 

I got a single release statement for my sell-to-cover transaction, but two different entries in my 1099-B.

273 shares vested = 177 shares sold and 96 shares sell-to-cover (these are the 2 separate entries in my 1099-B).

How do I treat those two entries in the 1099-B with respect to this screen. Thanks

[AmyC]

You need to enter the date vested and market price when vested.- the amount added to your w2 box 1. The employer sold 96 shares to cover the taxes on the 273 shares. The program is trying to understand your basis in the remaining shares that were sold. If you did not pay any fees or commissions, those boxes are blank.

@sg11sg