How do I add a comment to stock section or W2? IRS is confused because taxes were already paid in W2. RSU’s sold are now listed on 1099.

[dianejoetompkins]

We have Restricted stock units(rsu) vest each quarter and certain amount sold immediately to cover the taxes.  This is reported in the W2 by the company.  Last year the RSU’s sold were listed on the 1099.   IRS thinks we did not pay the taxes.  I want to put a comment in the W2 section or stock section this year notifying them where the taxes for those RSU’s are accounted for. 

[TomYoung · Accepted solution]

You need to understand what's going on here.

You have two entirely different transactions each time an RSU vests.

1. The vesting of the shares creates "compensation" income and, which requires "withholding" of taxes.  In order to get the money for those taxes so they can be reported on your W-2...
   
2. Shares are sold and the sale is reported on 1099-B's

You need to report both transactions.  The first transaction you report by entering your W-2.  The second transaction you report by entering the 1099-B's.

The taxes reported on your W-2 are associated with the compensation created by the vesting.  If instead of selling some shares to get the cash to pay those taxes you had instead reached into your pocket and handed your employer the needed cash, your W-2 would not look a bit different than it does now.  The taxes you paid have absolutely nothing to do with the sale of the shares.

So what I expect happened last year is you didn't report your stock sales, the IRS has picked up on those missing sales, and now wants to tax you on the sale, probably at the full amount of the proceeds for the sales.  What you need to do, both for last year and this year, is report those sales, but instead of using the basis reported by the broker, probably $0, you use a per share basis that's the same as the per share basis used by your employer in determining the compensation created by the vesting.  In the typical "same day" sale - which is what these are - you report a small loss on the sale caused by sales commissions and fees.  There's no issue of "double taxation" if you use the correct basis.

There's no "comment" on your income tax returns that's going to satisfy the IRS.  Amend last year's return with a brief explanation and prepare this year's income tax return properly and all will be well.

Tom Young