The RSU Double-Tax Trap: Why Your Broker’s 1099-B Is Costing You Thousands

If you receive restricted stock units and sold shares this year, there is a better-than-even chance your tax return contains a five-figure error waiting to happen — and your tax software will never flag it.

How RSUs are actually taxed

RSUs are taxed twice by design, at two different moments:

At vesting, the fair market value of the shares is ordinary income. It lands in Box 1 of your W-2, and your employer withholds on it (usually by selling a slice of the shares). You have already paid tax on this value.

At sale, you owe capital gains tax — but only on the growth between the vesting price and the sale price. That vesting-date value is your cost basis.

The system works fine when the basis is reported correctly. It frequently isn’t.

Where the trap springs

Under broker reporting rules, brokers are generally not required to include the compensation component in the basis they report for RSU shares. The result: your 1099-B often shows a cost basis of $0 (or blank) for shares you already paid ordinary income tax on.

File the 1099-B as-is, and here’s what happens: say 500 shares vested at $100 ($50,000 already taxed through payroll) and you sold at $110. Your real gain is $5,000. With a $0 reported basis, your return shows a $55,000 gain instead. You just paid capital gains tax on $50,000 of income that was already taxed as wages.

That is the double-tax trap. It clears e-file validation without a single warning, because nothing is technically inconsistent — the numbers are just wrong.

The fix

The basis must be adjusted on Form 8949 (column g, adjustment code B) to reflect the true vesting-date value. The documentation lives in your equity plan’s supplemental statement — Fidelity, Schwab, E*TRADE, and Morgan Stanley all publish one, usually buried a few clicks past the 1099-B. Your W-2 Box 14 sometimes shows the RSU income as a cross-check.

If you filed prior years without the adjustment, this is fixable: amended returns can generally be filed within three years to recover the overpaid tax. We have recovered meaningful refunds for new clients on exactly this issue.

The NJ/NY commuter layer

For New Jersey residents working in New York, there’s a second dimension. RSU income is generally sourced to where it was earned over the vesting period — so equity that vested after you changed jobs or states may be taxed by more than one state, with a resident credit doing the reconciliation. Allocation errors here compound the federal basis issue, and they are just as invisible to software.

If your equity comp spans a move, a job change, or a remote-work shift between NJ and NY, the allocation deserves a professional look before you file — not after a notice arrives.

What to do now

1.          Pull the supplemental equity statement from your broker every year, not just the 1099-B.

2.          Confirm every RSU sale on Form 8949 carries an adjusted basis.

3.          If you sold RSUs in the last three years and never adjusted basis, have the returns reviewed for a refund claim.

Romanchuk CPA LLC is a fully virtual CPA firm serving individuals with equity compensation and business owners nationwide since 2014. If your return includes RSUs, book a consultation at rfg.tax — a basis review is one of the fastest ways we find money clients didn’t know they lost.

This article is general information, not tax advice for your specific situation.