I received an RSU distribution on 1/1/2014, I then sold at the end of the same month. When the distribution was made a portion was automatically sold to cover income taxes. I have my 1099-B from the brockerage but I do not see this identified anywhere. Wondering at what tax rate determined the number of shares to be sold and if I have not paid enough or too much based on my adjusted tax bracket. Also, when I look at the 1099-B the cost basis of the remaining vested shares that I sold at the end of January 2014 is listed as $0.00. Now I am paying capital gains on the total sale and not the difference in the stock price at the time of grant.

Example: 150 units granted 1/1/2013 @ $50/share vesting over 3 years.
1/1/2014: 50 shares vest with 20 being sold to cover income taxes = 30 remain, share price now $55.
1/30/2014: Remaining 30 shares sold at $55/share.

In this scenario shouldn't I only be paying capital gains on ($55-$50) * 30, not $55 * 30?

Thanks for your help.

I am in the exact situation except I haven't sold any yet. I believe the formula you presented is correct. at least that is how I understand it. For us the shares to cover taxes are sold immediately to cover the original distribution, and then you only pay taxes on the capital gain. ...take it for what it's worth, I build roads, I'm not a cpa!

You sold at the same as what it was when it vested so your cost basis minus sale is $0 so theoretically no add'l taxes.

Now, that assumes the with holdings was in line with what you should pay. In the end it is income that is added to your total income and taxed at the rate with the bracket you are in.

The 1099-B has proceeds equal to sale value, but cost basis $0.

Were you issued restricted stock or restricted stock units (RSUs)? There is a difference. If it's restricted stock, in your example you would pay ordinary income tax on the difference between the value at vesting and the exercise price, I.e. 150*($55-$50)=taxable income, assuming $50 is your actual grant price (sometimes employees receive stock at a discount or even at a value of $0). Then when you sell, you pay capital gains tax on the difference between the vest price and the sell price, I.e 50*($55-$55)=taxable income. Unless you make a section 83(b) election, in which case different tax rules apply.

If they are RSUs, you pay ordinary income tax when they actually vest, I.e. 50*$55=$2750 taxable income, and if you sell later, you would pay capital gains on difference between sell and vest price, I.e. 30*($55-55)

So you get taxed twice?

I am in the same boat. RSU's were withheld at vesting to cover income taxes, and it appears I was taxed again for capital gains (proceeds from sell - adj cost basis).

They have changed the 1099 this year as it no longer calls out the cost basis for RSU's. They all are reported as $0.

My taxes went through the roof this year.....

You're not getting taxed twice, it's 2 separate transactions. The RSU grant itself is considered compensation, which is why the # of shares x strike price is in your w-2. Any income beyond that (# of shares x sale price - w-2 inclusion) is investment income subject to capital gains tax.

dp

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Were you issued restricted stock or restricted stock units (RSUs)? There is a difference. If it's restricted stock, in your example you would pay ordinary income tax on the difference between the value at vesting and the exercise price, I.e. 150*($55-$50)=taxable income, assuming $50 is your actual grant price (sometimes employees receive stock at a discount or even at a value of $0). Then when you sell, you pay capital gains tax on the difference between the vest price and the sell price, I.e 50*($55-$55)=taxable income. Unless you make a section 83(b) election, in which case different tax rules apply.

If they are RSUs, you pay ordinary income tax when they actually vest, I.e. 50*$55=$2750 taxable income, and if you sell later, you would pay capital gains on difference between sell and vest price, I.e. 30*($55-55)

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They are RSUs and I understand that. The issue is, as Frisco describes, the cost basis for the sale on 1099-B is $0 and not the price at award. So the 1099-B reflects the total value of the sale as subject to capital gains.

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Were you issued restricted stock or restricted stock units (RSUs)? There is a difference. If it's restricted stock, in your example you would pay ordinary income tax on the difference between the value at vesting and the exercise price, I.e. 150*($55-$50)=taxable income, assuming $50 is your actual grant price (sometimes employees receive stock at a discount or even at a value of $0). Then when you sell, you pay capital gains tax on the difference between the vest price and the sell price, I.e 50*($55-$55)=taxable income. Unless you make a section 83(b) election, in which case different tax rules apply.

If they are RSUs, you pay ordinary income tax when they actually vest, I.e. 50*$55=$2750 taxable income, and if you sell later, you would pay capital gains on difference between sell and vest price, I.e. 30*($55-55)

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They are RSUs and I understand that. The issue is, as Frisco describes, the cost basis for the sale on 1099-B is $0 and not the price at award. So the 1099-B reflects the total value of the sale as subject to capital gains.

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Ok got you. I did a little digging. Looks like the IRS changed some things recently for 1099-b. Read this bulletin: https://communications.fidelity.com/sps/2014/18682/TAX/article1.html
Basically now your broker leaves the basis box blank or 0 for RSUs, and it's up to you to adjust your gain/loss for the correct basis on your form 8949 and schedule D. In your original example in your OP, $55 would be your basis for capital gains. RSUs don't have an exercise price, they are different in that respect from stock options. You will pay excess capital gains tax if you report your basis as zero. I would verify all this with your tax attorney.

I sell mine right after they vest in order to mitigate taxes on the second transaction. However, (1) the stock price of the stock I'm referring to has been at all time highs for over a year and I don't think it will go any higher, and (2) selling it and then reinvesting it keeps me more diversified otherwise I would be really heavy with that stock.

thanks for the link. here is the part that is confusing.

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Note: While this change may prove helpful with the reporting of stock sales on your tax return, unless your brokerage firm includes the compensation part of your cost basis (not permitted starting with sales from grants in 2014), either the cost basis reported in Box 1e of Form 1099-B will be too low or the cost-basis box will be left blank. To avoid overpaying taxes, you must adjust the gain/loss on Form 8949 and Schedule D or, if Box 1e is left blank, simply report the correct basis.

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Yeah, so on your form 8949 - which obviously feeds into your schedule D - there is a column (e) for putting in your basis. To the right you'll see column (g), that is where you report your gains adjustment typically. But since your 1099-b basis box is blank instead of an actual value, it looks to me like the IRS is saying you can skip the adjustment/correction step and simply report your actual basis in column (e) and skip the column (g) step. That's how I interpret that anyway.

Edit: I re-read your post. If they actually filled in box 1e as $0 instead of blank, I personally would report $0 in column (e) and then adjust your gains in column (g) just to be conservative.

From what I read online after searching, I ended up putting the W-2 Income column from my Statement of Taxable Income into Box 1e (Cost or Other Basis).

This make sense to others?

OOOOhhh, RSUs not ROUS

~egon

While the cost basis may be $0 and you sold shares to cover the taxes, that doesn't mean you don't owe additional taxes. It's my understanding that they sell to cover taxes at 25%. If you fall in the 39.6% tax bracket you owe an additional 14.6% of the value in taxes. This is in additional to the capital gains from the sale. Then again, I'm no CPA, but I did stay at an Omni last night.