RSU Cost Basis: The Most Expensive Zero on Your 1099-B

Economically, an RSU vest is two events stapled together: your employer paid you a cash bonus equal to the share value, and you immediately used every dollar of it to buy the shares at market. The tax system sees it exactly that way. The vest value is compensation (taxed through your W-2 at ordinary rates), and because you "spent" that taxed income on the shares, it becomes your cost basis, exactly as if you had bought the stock through the front door.

So for 100 shares vesting at $60: $6,000 of W-2 income at vest, $6,000 of basis in the shares, a $60 per-share starting line. Sell at $70 and the taxable event is $10 per share of capital gain. Sell at $60 the day of vest and the additional tax is roughly zero. Sell at $50 and you have a $10 per-share capital loss, even though the position never made you a nickel; the W-2 income at vest and the capital result at sale are separate ledgers.

The same logic covers every share from the vest, including the ones automatically sold for taxes under sell-to-cover: those shares carry the same vest-date basis, which is why the covered sale reports an almost-zero gain when the basis is entered correctly.

Since a 2014 change to the broker basis-reporting regulations, brokers reporting sales of shares acquired through equity compensation are generally required to report only the cash you paid for the shares, excluding the compensation income component. For RSUs the cash you paid is zero, so the 1099-B dutifully says zero (or leaves the box blank, or marks basis as "not reported to the IRS"). The broker is compliant. The IRS receives that same zero.

The system's assumption is that YOU will supply the missing basis on Form 8949. Tax software imports the 1099-B feed automatically, and if nobody intervenes, the zero flows straight through to a massively overstated gain. This is probably the single most common self-prepared-return error we see in equity-comp returns, and it recurs every single year the taxpayer sells.

Brokers know this, which is why nearly all of them also publish a supplemental information statement each tax season, showing the "adjusted cost basis" (the true, vest-value basis) for every equity-comp sale. It is not sent to the IRS and is often a separate download from the 1099-B itself, but it contains precisely the numbers your Form 8949 needs.

If you spot this on a return you already filed, it is fixable: amend on Form 1040-X with a corrected Form 8949, generally within three years of the original filing deadline, and the overpaid tax comes back with interest. We find money in prior-year equity-comp returns often enough that it is a standard checklist item in our onboarding reviews.

The IRS-prescribed fix, straight from the Form 8949 instructions, depends on whether the wrong basis was reported to the IRS:

Basis was reported to the IRS (covered shares, Box A/D checked): enter the sale exactly as the 1099-B shows it, wrong basis and all, in columns (d) and (e). Then put code B in column (f) and, in column (g), the adjustment that corrects the gain: negative the amount of the missing basis. For the example above: proceeds $35,000, basis $0, code B, adjustment ($30,000), producing the correct $5,000 gain in column (h). Do not simply overwrite column (e); the IRS matches that column against the broker filing.

Basis was NOT reported to the IRS (noncovered, Box B/E, or basis box blank): you may enter the correct basis directly in column (e), no code needed. Most equity-comp sales fall in the first bucket, which is why the code B pattern is the one to learn.

In consumer tax software, this lives behind a screen usually labeled something like "the basis on my 1099-B is incorrect or missing" or "this sale involves employee stock." Answer honestly, type the vest-date basis from the supplemental statement, and the software builds the code B entry for you. The full return-level walk-through (W-2 boxes, Schedule D, where each number lands on the 1040) is on the how to report RSUs guide.

Once the basis is right, RSU shares are just stock, and the sale follows ordinary capital-gains rules. Two inputs decide the bill: how long you held past vest, and your taxable income.

Held one year or less from vest: short-term gain, taxed at your ordinary bracket, up to 37% federal for 2026. Held more than one year from vest: long-term gain at the preferential rates. For 2026, the 0% rate covers taxable income up to $49,450 single / $98,900 married filing jointly; 15% applies up to $545,500 / $613,700; 20% above that.

High earners add the 3.8% net investment income tax on gains once modified AGI passes $200,000 (single) or $250,000 (joint), thresholds that are not inflation-indexed and that RSU-heavy compensation blows through routinely. A tech employee in the 15% long-term bracket with NIIT is really paying 18.8% federal on long-term RSU gains, plus state tax.

Notice what is NOT on this table: any way to reduce the tax on the vest income itself. Holding longer, selling smarter, and lot selection only ever manage the gain since vest. People hold concentrated employer stock for years "for tax reasons" that mathematically apply to a small slice of the position. If the growth since vest is modest, the tax cost of diversifying is modest too; run the numbers in the RSU tax calculator before letting the tail wag the dog. Withholding on the vest side is its own topic, covered on the RSU withholding guide.

When you need the vest-date basis for a sale, work down this list:

1. The broker supplemental statement. Published alongside the 1099-B each tax season; shows adjusted cost basis per lot for equity-comp sales. This is the number to use, already matched to the specific shares sold.

2. Vest/release confirmations. Each vest generates a confirmation showing shares released, the fair market value used, and shares withheld. Vest FMV times shares equals lot basis. These live in your equity portal and survive even when you change brokers.

3. Year-end pay stubs or W-2 detail. The RSU income added to Box 1 often appears as a memo item (frequently in Box 14, labeled "RSU"). It confirms the total compensation recognized, useful for reconciling that your per-lot math ties out. Our W-2 Box 14 guide decodes those entries.

4. Historical price data as a last resort. If records are gone (a departed employer, a migrated plan), the vest dates from old account statements plus the closing price on each date reconstruct a defensible basis. Document the method; a reasonable, consistent reconstruction beats a zero every time.

Every vest is its own lot. Quarterly vesting for four years produces sixteen lots with sixteen bases and sixteen holding-period clocks. A single "sell 1,000 shares" order can straddle lots and produce mixed short- and long-term results. Set your broker's default disposal method deliberately, and use specific identification when a sale is large enough for lot choice to matter; the election has to happen at the time of sale.

Losses are real and usable. Shares that fell since vest generate capital losses that offset gains and then up to $3,000 of ordinary income per year, carrying forward indefinitely. The W-2 income from vest never reverses, which feels unfair and is simply how the two ledgers work.

Wash sales interact with vesting schedules. Selling at a loss within 30 days of a vest (before or after) defers the loss into the replacement shares, because a vest counts as an acquisition. On monthly vest schedules there may be no clean window for loss harvesting at all. The mechanics and the sell-to-cover edge case are covered on the sell-to-cover guide.