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RSU stock awarded and taxed in 2016 sold in 2019 - how do I calculate cost basis?

Forum|Forum|6 years ago
May 13, 2020
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We were awarded 350 RSU stocks in 2016. 135 were sold by employer to pay for taxes (in 2016).

1. We didn't understand this RSU sale at the time so we didn't properly record transaction in 2016. In fact IRS sent significant supplemental bill in November 2017. Not sure if we should try to amend 2016 due to this error in not properly reporting the transaction-could be a refund for us? (we didn't understand the sale of stocks "for taxes" that is common with RSU's).

2. This year we are selling the remaining RSU stock. Is the basis simply the market value from 2016 or do we include the previously paid withholding or taxes paid as cost basis? It seems like we are being taxed twice for these stocks AND then being taxed for the long term gain.

You help would be great! Thanks

Best answer by TomYoung

"1. We didn't understand this RSU sale at the time so we didn't properly record transaction in 2016. In fact IRS sent significant supplemental bill in November 2017. Not sure if we should try to amend 2016 due to this error in not properly reporting the transaction-could be a refund for us? (we didn't understand the sale of stocks "for taxes" that is common with RSU's)."

I hope you didn't pay that bill! Since brokers do not put the correct basis on 1099-Bs reporting the same day sale of stock acquired via an RSU - it's usually reported on the 1099-B as "$0" which is not correct - the IRS's bill assumes that the entire amount of proceeds is profit. You may be too late to amend, but maybe not. You generally have until three years after the deadline for filing your original federal tax return (or three years after the date you filed your return, if you received an extension) to file an amended return if you need to make changes.

"2. This year we are selling the remaining RSU stock. Is the basis simply the market value from 2016 or do we include the previously paid withholding or taxes paid as cost basis? It seems like we are being taxed twice for these stocks AND then being taxed for the long term gain."

Your per share basis is the same as the per share "fair market value" used by your employer to calculate the compensation created by the vesting. Compensation = (GROSS # of shares in grant) x (per share "FMV")

All the taxes you incurred as a result of the vesting in 2016 relate to compensation. Now, when you sell the stock and assuming you're selling the stock at a gain, the taxes relate to your capital gain. There's no "double taxation" going on.

T

TomYoungAnswer

Employee

"1. We didn't understand this RSU sale at the time so we didn't properly record transaction in 2016. In fact IRS sent significant supplemental bill in November 2017. Not sure if we should try to amend 2016 due to this error in not properly reporting the transaction-could be a refund for us? (we didn't understand the sale of stocks "for taxes" that is common with RSU's)."

I hope you didn't pay that bill! Since brokers do not put the correct basis on 1099-Bs reporting the same day sale of stock acquired via an RSU - it's usually reported on the 1099-B as "$0" which is not correct - the IRS's bill assumes that the entire amount of proceeds is profit. You may be too late to amend, but maybe not. You generally have until three years after the deadline for filing your original federal tax return (or three years after the date you filed your return, if you received an extension) to file an amended return if you need to make changes.

"2. This year we are selling the remaining RSU stock. Is the basis simply the market value from 2016 or do we include the previously paid withholding or taxes paid as cost basis? It seems like we are being taxed twice for these stocks AND then being taxed for the long term gain."

Your per share basis is the same as the per share "fair market value" used by your employer to calculate the compensation created by the vesting. Compensation = (GROSS # of shares in grant) x (per share "FMV")

All the taxes you incurred as a result of the vesting in 2016 relate to compensation. Now, when you sell the stock and assuming you're selling the stock at a gain, the taxes relate to your capital gain. There's no "double taxation" going on.