Reporting Income from RSAs
The first step in RSA reporting is recognizing when the income is taxed:
- Without an 83(b) Election: The value of your RSAs is treated as ordinary income at the time they vest. Your employer includes this income on Form W-2, and it is subject to federal income tax, payroll taxes (Social Security and Medicare), and applicable state taxes.
- With an 83(b) Election: You elect to recognize the income at the grant date, rather than at vesting. The grant-date fair market value is reported on your W-2, even though the shares are not yet vested. No additional income is reported at vesting.
In both cases, once the RSAs are taxed as income (either at grant or vesting), this amount becomes your cost basis for capital gains purposes.
Reporting the Sale of RSA Shares
When you sell the RSA shares—whether immediately after vesting or years later—you must report the transaction on Form 8949 and Schedule D of your tax return. These forms are used to report capital gains or losses from the sale of investment property.
It is essential to use the correct cost basis—which should reflect the amount previously included in income via your W-2. If the cost basis is understated (as is sometimes the case with brokerage 1099-B forms), you could be taxed again on income you’ve already paid tax on.
Common Mistakes to Avoid
- Using an incorrect cost basis: Always confirm the brokerage’s reported cost basis and adjust it if necessary to reflect the amount already taxed as compensation.
- Failing to report the 83(b) election: If you filed an 83(b), attach a copy with your return and retain records.
- Omitting Form 8949: Even if there is no gain or loss, the sale must be reported properly.
Proper RSA reporting helps prevent double taxation and ensures compliance with IRS rules.
