> Be conscious of what is going on with sell to cover on RSUs if you go that route, especially shortly after you joined a company or vesting a new grant these will also be sold at short term gains (if the stock went up), also going towards you taxable income. This is an easy way to end up with a surprise monster tax bill.

I don’t think this is true? My understanding, from my company which mandates sell to cover on vest, is that the cost basis is the price on the day of vest. The shares that are sold to cover are sold at the same price so there are no gains or losses and the amount that is sold is (in theory, if you’ve set it up this way) equal to your marginal tax rate so you end up paying around the correct amount to not have a huge tax bill.

If you set your sell to cover % very low, then yes you will have a large tax bill because the vest value is treated as ordinary income and taxed at that rate. I do know some people at my company that intentionally set it to the lowest possible % and invest the difference while paying quarterly estimated tax payments, but it’s too much of a hassle for me personally.

Perhaps this only happened to me from the difference in market fluctuations in the day or two between vest and the sale (this happened to be in 2020 when my company was on a heater). Or maybe etrade allows you to sell shares from a different grant than the one vesting to cover and I didn't realize? In either case in 2020 it seemed like I got some rich guys W2 instead of mine and most of my sales were just sell to cover. I find it ultimately more simple to do the tax payment in cash rather than also involving a stock sale on top. Interesting you company mandates sell to cover, or do you just mean that is the default?

Something that commonly happens is that your brokerage sent you the cost basis for those sales at $0 on your 1099 form. There's typically an adjusted cost basis buried on their website which is what actually needs to be entered into your tax software as the cost basis, not $0.

So say you had $50k in stock vest and you sold $10k to cover the income tax. It's likely that when you import your 1099 that the cost basis is set to $0 on the $10k which if treated as a gain is a $2k-$3k tax bill. But if you find the adjusted cost basis and enter it the taxes drop to essentially $0.

So if you've experienced a huge, unexpected tax bill from RSUs vesting, go back and look at your tax return. If you see a $0 cost basis on the form then you overpaid. It may not be too late to amend your return and get it back.

> Something that commonly happens is that your brokerage sent you the cost basis for those sales at $0 on your 1099 form.

Can't emphasize this enough. Etrade does this, which is maddening. The form they send has the wrong numbers (zero cost basis).

There's another form buried in their website where you can get the actual cost basis. Must use that one, otherwise will massively overpay taxes.

Why Etrade why.

It's not Etrade, it is the IRS instructions for Form 1099-B, Box 1e (cost basis).

"If the securities were acquired through the exercise of a compensatory option, the basis has not been adjusted to include any amount related to the option that was reported to you on a Form W-2."*

Yes, you likely will get a supplemental document to your 1099 from etrade (or whoever) with the correct cost basis.

This.

If you sell RSUs immediately upon vesting, there is no capital gains, only ordinary income.

What likely happened is that the supplemental withholding rate (22% for supplemental income up to $1 million, and 37% for income exceeding that amount) was lower than your marginal tax bracket, and the tax you owed was a result of the supplemental income (the RSUs) incurring more tax liability than was withheld for them.

> DO NOT FORGET TO ADJUST YOUR COST BASIS ON RSU SALES WHEN FILING TAXES

Say more? Why would I ever want to adjust my cost basis to something other than the shares' FMV at vest (which, in my experience, is always the default)?

In some company setups, your company reports the vested shares as income on your W-2. They also report your RSUs as having a $0 cost basis. This results in being taxed twice.

E*TRADE at least provides an addendum that lets you know the adjusted cost bases to report to the IRS.

In my case this happens for RSUs and—I believe—not for ESPPs which are reported correctly out the gate.

With my (and everyone else at my companies) setup with etrade, you get a 1099, and then later an addendum with the adjusted values. Turbotax by default tells you to enter the 1099 sales, and after entering and submitting each row, you see the chance to adjust the cost basis, which you must enter manually from the addendum. Perhaps other brokerages have a more elegant setup. If you don't adjust you will be double taxed. This would likely be obvious to you if you sold a lot of shares, but if you just did some small sales, I can easily see someone accidentally double taxing themselves.

Very true for ESPP, but I haven't seen that for RSUs. Is your broker reporting the cost basis of the RSUs at $0? Otherwise why and how does the cost basis of an RSU even change?

Yes. Etrade reports the cost basis of RSUs as $0 on the 1099. You then must manually adjust the cost basis using a second schedule that shows the value of the RSU already taxed as income at the time of vesting. If you don't make this adjustment, you will be paying taxes on thousands of dollars in "gains" that aren't actually gains and have already been taxed as income.

Fidelity does the same thing. Cost basis of RSUs shows 0 on the 1099 and you get a supplemental 1099 with adjusted cost basis. If you don’t take care to use the adjusted value, you will be paying both income tax and capital gains tax on the market value at vesting, instead of just income tax as you should.

> Be conscious of what is going on with sell to cover on RSUs if you go that route… these will also be sold at short term gains (if the stock went up)

These will be sold at exactly the value you acquired them at, meaning there are no gains whatsoever.

I’m pretty sure my sell-to-cover RSUs take a day or few to settle, resulting in a small but nonzero gain or loss.

The details may depend on the employer + brokerage.

The cost basis thing was always more of a problem for me with ESPP. However TurboTax imported the sale data the cost basis would be 0. For some reason it always took me 2 or 3 tries to find where to put in that info in TurboTax.

Yes, I have always had the same problem with ESPP lots with TaxAct, importing data from Fidelity. Fidelity reports a non-zero but incorrect cost basis, but for some reason the importer doesn't like those line items and imports them as zero.

I've never had a problem with cost bases for RSUs, they get imported just fine.