A Restricted Stock Unit (RSU) is a form of compensation that some employers provide in addition to cash wages. Instead of receiving cash, you receive shares of company stock once certain conditions are met, such as remaining employed for a specific period of time.
RSUs are typically subject to a vesting schedule, which means you don't actually own the shares until they vest. Before vesting, the units have no transferable value and cannot generally be sold.
Once the RSUs vest, the fair market value of the shares is treated as taxable compensation and is included in your income.
How Are RSUs Taxed?
When your RSUs vest:
- The fair market value of the vested shares is treated as wage income.
- The amount is generally included in Box 1 (Wages, Tips, Other Compensation) of your Form W-2.
- Employers often withhold some of the shares to cover federal and state taxes.
- The remaining shares are deposited into your brokerage account.
Because the value of the vested shares is already included in your taxable wages, you've typically already paid income tax on that amount through payroll withholding.
Where Do I Report RSUs on My Tax Return?
If your RSUs vested during the year, the income is generally already reported on your Form W-2.
In many cases, the vested value may also appear in Box 14 of your W-2. Since Box 14 doesn't have standardized IRS codes, employers may use descriptions such as:
- RSU
- RSU Income
- RSU Gain
- Other compensation descriptions
When entering your W-2 in the program, you can generally select Other Not Listed Here if a specific RSU option isn't available.
If You Still Own the Shares
If your RSUs vested but you did not sell the shares, there is typically nothing else to report on your tax return beyond the W-2 income already included in your wages.
Many employees hold their shares after vesting, so no additional reporting is required until the shares are eventually sold.
What If I Sold My RSU Shares?
If you sold shares received through an RSU award, you'll generally need to report the stock sale on Schedule D and Form 8949.
Your brokerage should provide a Form 1099-B reporting the sale.
To enter the sale in the program:
- Go to Federal.
- Select Income.
- Choose Investments.
- Select Stocks, Mutual Funds, Cryptocurrency, Collectibles, etc.
Use the information reported on your Form 1099-B to enter the transaction.
What Cost Basis Should I Use for RSU Shares?
One of the most common mistakes when reporting RSU stock sales is using the wrong cost basis.
Your basis generally includes:
- Any amount you paid for the shares (if applicable), plus
- The value of the shares that was already included in your taxable wages when the RSUs vested
In most cases, the taxable RSU income reported on your W-2 becomes part of your stock basis.
Example
Suppose:
- 100 RSU shares vest.
- The fair market value at vesting is $5,000.
- The $5,000 is included in your W-2 wages.
Your starting basis in the shares is generally $5,000.
If you later sell the shares for $6,500, your taxable capital gain would generally be $1,500, not $6,500.
Using the correct basis helps prevent the vested income from being taxed twice.
What Documents Should I Keep?
Keep copies of:
- Form W-2
- Form 1099-B
- RSU vesting statements
- Brokerage statements
- Any employer documentation showing the fair market value of the shares at vesting
These records can help you determine the correct basis when the shares are sold.
What About Form 3921?
Some employees may receive Form 3921, which relates to the exercise of Incentive Stock Options (ISOs).
Although Form 3921 is not used to report RSU income, you should keep it with your tax records if you receive one, as it may be needed for future tax calculations.
Key Takeaway
RSUs are a form of stock-based compensation that become taxable when they vest. The value of the vested shares is generally included in your W-2 wages. If you continue to hold the shares, no additional reporting is usually required. If you sell the shares, you'll report the sale using the information from Form 1099-B and use the vested value already included in your wages as part of your cost basis.