Restricted Stock Units (RSUs) are a form of compensation that are used by many employers. These are generally taxed at the time of vesting, whereas employee stock options are usually taxed at the time of option exercise. The employer is required to withhold taxes as soon as the RSUs become vested.

When this stock vests, an employee has three choices (it is possible, however, that not all employers offer all three choices and may automatically do the “Sell to Cover” option):

• Do a Same Day Sale and sell all of the stock. You receive the cash left over after subtracting withholdings.
• Sell to Cover. The employer sells just enough shares to cover the tax withholding and you keep the remaining shares and can sell them whenever you want.
• Cash Transfer. You (the employee) must come up with the cash to cover the required tax withholding amount. If you pay over the amount of cash to cover withholdings, then all of the shares belong to you and they can be sold whenever you want.

The employer will issue Form W-2 to report the amount of income and withholding. See Form W-2 – Entering in Program for details. Since the stock is sold on the same day it vested, all income is reported on your W-2, so no income (gain/loss) should be reported when entering the 1099-B information. The Form 1099-B must still be reported since the IRS gets a copy of this document and will be looking for it on your tax return.

Your tax basis in the shares is generally the fair market value included in your W-2 income when the shares vested, plus any amount you paid to acquire the shares.

In some cases, you will also receive Form 1099-B. See Form 1099-B – Entering Capital Gains and Losses in Program for details.

NOTE Enter the cost basis from Form 1099-B exactly as reported. If the reported basis differs from your actual basis, any required adjustment should be made when reporting the transaction so that income already included on your W-2 is not taxed a second time. To adjust this information in TaxAct, select an adjustment code on the screen titled Investment Sales – Adjustment Codes and entering an amount on the screen titled Investment Sales – Adjustments.

You may need to talk with your employer or plan administrator to determine what exactly happened and how much is being reported on Form W-2 and Form 1099-B.

Also see Publication 525.