Contributed by KeriC, FreeTaxUSA Agent, Tax Pro
Restricted Stock Units or RSU's are similar to incentive stock options, but an RSU is taxed when it vests, whereas an Incentive Stock Option (ISO) is taxed when it's exercised.
When the RSU vests, the total value of the vested shares will be included in your wages shown in box 1 of your W-2 and the value is taxed as wages. However, you will also receive a Form 1099-B when you sell some or all of the shares. To avoid double taxation, you’ll include the amount already reported in income on your W-2 as part of the cost basis. *
Example: You had 1000 RSUs vest in 2024 with a total value of $10,000. The $10,000 will be included with your regular wages in box 1 of the W-2 and taxed as ordinary wage income. Your cost basis in the 1000 RSU shares is $10,000.
If 200 RSU shares were sold by your employer to cover tax withholdings, then $2,000 would have been included as part of your federal and/or state tax withheld shown on your W-2. You would get a Form 1099-B showing stock sale proceeds in box 1d of $2,000 and report that as stock sold. Your cost basis in the stock sold would also be $2,000 resulting in a capital gain of $0. The 1099-B may not show any cost basis in box 1e, but this was already taxed on the W-2 as income, meaning you do have cost basis in the stock.
It’s important to enter the cost basis as an adjustment so the income won’t be double taxed (once as wages and once as a capital gain). Below are screenshots of how you enter the information and add the adjustment for the above example:
Continuing the example, if you hold on to the remaining 800 shares for a few years, then sell all 800 shares, you will get another form 1099-B for the year you make the second sale. In this case your cost basis will be $8,000 for the remaining 800 shares sold. The sales proceeds in box 1d of the 1099-B will be whatever the sales price is on the day the stock is sold.
*If your vested RSU is not reported on the W-2, our software doesn’t support this situation.
