How do I report vested stock on my taxes?
When your award is vested or distributed, your employer will withhold ordinary income and FICA† taxes. The tax amounts, along with the income from the value of your shares, may be included on your W-2. 1099-NEC. The information on your W-2 (or 1099-NEC) is used to fill out tax form 1040.
When you receive an RSU, you don't have any immediate tax liability. You only have to pay taxes when your RSU vests and you receive an actual payout of stock shares. At that point, you have to report income based on the fair market value of the stock.
RSU tax at vesting date is: The # of shares vesting x price of shares = Income taxed in the current year. If held beyond the vesting date, the RSU tax when shares are sold is: (Sales price – price at vesting) x # of shares = Capital gain (or loss)
In general: With incentive options, you are not taxed when the options vest or when you exercise the option. When you sell the stock you bought with the option, you pay capital gains taxes. With nonstatutory options, you also are not taxed when the options vest.
Until the vesting requirements of the RSU are met, the employee will not have any tax on them. Once the RSUs have vested they will be treated as earned income and the employee will be subject to tax. Sometimes an employer may withhold the taxes for the RSUs.
Long-term capital gains rates are likely the lowest tax on your company shares. In order to minimize your RSU taxes as much as possible, it's typically advisable to hold your shares for at least one year after the vesting date to qualify for long-term capital gains taxes.
When vesting schedules are completed, an employee may be "fully vested" which means they are entitled to ownership of their shares. A vesting schedule is a document that outlines when and how an employee will earn their equity stake in the company.
When each RSU is sold, it is taxed as capital gains. Capital gains covers the amount that you have profited on the sale of the stock above and beyond the value that it held when it first vested. It is worth noting that being taxed twice means you made money twice.
Restricted stock is included in gross income for tax purposes and is recognized on the date when the stocks become transferrable. This is also known as the vesting date.
If you have RSUs the amount should be shown in box 14 of your W-2 copy. This amount should also be included in the wages (box 1) of your W-2. Box 14 is used by employers to list various items and there is not a standard list of codes, you can use the options for "Other Not Listed Here" in place of RSU Gain.
How to calculate stock tax?
- Determine your basis. The basis is generally the purchase price plus any commissions or fees you paid. ...
- Determine your realized amount. ...
- Subtract the basis (what you paid) from the realized amount (what you sold it for) to determine the difference. ...
- Determine your tax.
Form 3921 Exercise of an Incentive Stock Option Under Section 422(b), is for informational purposes only and should be kept with your records. It does not need to be entered into your return unless you still hold the stock at year end (if you do, see the previous information regarding Alternative Minimum Tax (AMT)).
60% of the gain or loss is taxed at the long-term capital tax rates. 40% of the gain or loss is taxed at the short-term capital tax rates.
So the tax on the date of purchase is zero. Vesting is not a taxable event and so you owe no tax on vesting. You only have to pay tax on the gain when you sell the shares. In contrast, if you do not file a Section 83(b) election , you effectively defer being taxed until vesting.
Restricted stock units
Employers will include in income on the W-2 the fair value of the RSUs as of the day they vest. This fair value will be reflected in Boxes 1, 3 (up to the annual Social Security limit), and 5.
If the RSUs fall into the first or second option, you'll receive a Form 1099-B reporting the total sales proceeds for the number of shares sold. (You may receive a 1099-B for option 3 if you sold any of the shares during the current tax year.)
Locate Supplemental Tax Documentation
Don't rely only on the 1099-B form. Instead, supply proof of the true cost basis of the restricted stock unit so you only pay taxes on what you owe. Some documentation may include the following: Records from your company supporting the vesting date and number of shares.
Double taxation refers to income tax being paid twice on the same source of income. This can occur when income is taxed at both the corporate level and the personal level, as in the case of stock dividends. Double taxation also refers to the same income being taxed by two different countries.
If you sold restricted stock units (RSUs) or shares from your employee stock purchase plan (ESPP), these are reported on Form 1099-B. To report the sale of shares, you'll enter or import your Form 1099-B into TurboTax, then manually enter the cost basis.
There's no standard list of codes for Box 14, so employers can choose how to describe the income here. If you see the letters "RSU" accompanied by a dollar amount, it's likely referring to the the value of restricted stock units (RSUs) that have been distributed to you by your employer during the tax year.
Should I sell RSUs immediately?
Timing of Selling RSUs
Selling RSUs immediately upon vesting is a common approach for many individuals. The reason behind this strategy is to avoid any potential decline in the company's stock value.
What happens when you're fully vested? Once you're fully vested, the full value of your employer's contributions are yours and typically all future employer matches vest immediately. These will continue to be invested according to your plan and will be available to you in the event you leave the company.
Vesting period is determined by your plan rules. Could take approximately one or two days to complete. Typically within two market or business days after vesting.
When a restricted stock vests, you can sell the shares you've received. It's important to consider your risk tolerance, asset allocation, and investing goals to decide on the best time to sell your restricted stock, just as you would with any other security in your portfolio since that is what it's now become.
When an employee receives Restricted Stock Units, they have an interest in the company's equity, but the units have no tangible value until they vest. Once the RSUs vest, the employee can keep, sell, or transfer the shares, just like any other stock. Companies use RSUs as a form of employee compensation or bonus.
