How to Report RSUs on Your Tax Return

An RSU year produces at most two tax documents: a W-2 carrying the vest income and withholding, and a 1099-B if any shares were sold (and shares are almost always sold, because sell-to-cover sales count). The W-2 handles itself. The 1099-B needs reconciliation, because the basis it reports for equity-comp shares is systematically understated.

Keep one principle in view and every screen in your tax software makes sense: the vest was taxed as wages; the sale should only tax what happened after the vest. Any time the return starts taxing the vest value a second time (a giant capital gain on shares you barely held), the basis is wrong, not the principle.

The value of every vest during the year was added to your wages when it happened: Box 1 (federal wages), Box 3 up to the Social Security wage base, Box 5 (Medicare wages), and your state wage boxes all include it. The withholding funded by sell-to-cover sits in Boxes 2, 4, 6, and 17. When you type the W-2 into your software, the RSU income is reported. That is the entire vesting side of the return.

Many employers also print the year's RSU income in Box 14 with a label like "RSU." It is a memo, not an instruction: the amount is already inside Box 1, and it goes nowhere else on the return. Its real value is to you, as an audit trail; it should roughly equal shares vested times vest prices across the year, the same numbers that set your cost basis. Box 14 carries a zoo of other codes worth decoding too; our W-2 Box 14 codes guide covers the full list.

Pull the consolidated 1099-B and find every row involving employer stock. Expect three flavors: the small sell-to-cover sales at each vest, any manual sales you made, and (if you sold across lots) rows split between short-term and long-term sections. For each row, the proceeds figure is reliable; the basis figure is the suspect. Broker rules generally force them to report only what you paid in cash for the shares, which for RSUs is zero, so the basis column will read $0, blank, or "not reported."

Now download the supplemental stock plan statement from the same broker portal. It lists the same sales with an "adjusted cost basis" column showing the true vest-date basis per lot. Your reconciliation is a two-column match: 1099-B row by row against supplemental-statement row, with the adjusted basis winning every disagreement. If no supplemental statement exists, vest confirmations (shares times vest-date price) rebuild the same numbers; the RSU cost basis guide covers reconstruction in detail.

In software, you will not see the columns directly: look for the checkbox or interview question about employee stock or incorrect basis on each imported sale, and supply the adjusted basis there. If you file with a preparer, hand over the supplemental statement with the 1099-B and say the words "equity comp, check the basis adjustments." Good preparers smile; the other kind is the reason this page exists.

Form 8949's short-term and long-term totals carry onto Schedule D, which nets them against any other capital activity (brokerage sales, crypto, carryover losses from prior years). The net number flows to Form 1040 line 7. Long-term gains get their preferential 0/15/20% rates through the tax worksheet; short-term gains simply join ordinary income. High earners pick up the 3.8% net investment income tax on Form 8960 once modified AGI crosses $200,000 single or $250,000 joint.

Note what never appears anywhere on Schedule D: the $40,000 of vest income. It reached the 1040 inside line 1a wages. If you can trace both paths on your finished return (wages including vests on line 1a, only the since-vest growth on line 7), your RSU reporting is correct. The rate mechanics on the capital-gain side, including the 2026 brackets and holding-period rules, live on the cost basis and capital gains guide.

Vest income arrives with withholding at the flat supplemental rate, 22% federal for most people, while the income itself may be taxed at 32%, 35%, or 37% on top of a healthy salary. The tax return is where that gap finally presents its bill. If your balance due is startling, the cause is almost always mechanical: flat-rate withholding on large vests, not some exotic mistake.

Fix it prospectively while the return is open: project this year's vests, compare withholding against the safe harbors (110% of last year's tax for most high earners, or 90% of the current-year liability), and set quarterly estimates or extra payroll withholding to close the gap. The complete method, rates, and worked shortfall example are on the RSU tax withholding guide, and the RSU tax calculator will produce the projection in a few minutes.

1. Accepting the broker's zero basis.

The expensive one: the entire vest value gets taxed a second time as capital gain. The code B adjustment in section four is the cure, and amending is the after-the-fact remedy, generally available for three years.

2. Adding Box 14 as extra income.

The Box 14 RSU memo is already inside Box 1. Entering it again anywhere inflates wages and overpays immediately. Box 14 entries are informational unless a state instruction says otherwise.

3. Omitting the sell-to-cover sales.

They feel like plumbing, but each one is a reported securities sale. Leave them off and the IRS matching program eventually proposes tax on the full proceeds. Every 1099-B row goes on the return.

4. Misreading the holding period.

The clock starts at vest, not at grant. Shares from a four-year-old grant that vested in June and sold in December are short-term. Sorting lots into the wrong part of Form 8949 misprices the tax in either direction.

5. Ignoring the multi-state wrinkle after a move.

Moved states mid-vesting-period? The vest income is typically split between states based on workdays during the vesting period, and two states may both claim a piece (with a credit reconciling them). A California-to-Texas move does not make California's share of an in-flight vest disappear.