Don't Trust Your 1099-B: How to Report RSU Sales Correctly on Your Tax Return

Understand IRS Forms 1099-B and 8949 Before You File

When your RSUs vest and turn into stock, it feels like free money. Until tax time.

If you're not careful, you could end up paying tax twice on that same income, once when the RSUs vest and again when you sell the shares.

The culprit? Bad basis reporting on Form 1099-B. Most brokerage firms report the wrong cost basis for RSU shares. And the IRS expects you to catch it.

In this article, we’ll break down how RSUs are taxed, where 1099-B goes wrong, and how to correct it on your return using Form 8949, so you don’t overpay or get flagged for an audit.

Restricted Stock Units (RSUs) are a common form of equity compensation, particularly in the technology and high-growth sectors. When RSUs vest, they convert into actual shares of stock. At that moment:

• The value of the shares is treated as ordinary income, taxed through payroll.
• Your employer withholds federal, state, Social Security, and Medicare taxes, just like with cash compensation.
• Your W-2 reflects the income from vested RSUs in Box 1 (and often Box 14).

You now own the shares, and your tax basis should be equal to the fair market value (FMV) at the time of vesting.

So far, so good. But what happens when you sell?

When you eventually sell your RSU shares, your broker will send you a Form 1099-B. This form informs the IRS (and you) of the sale price of the shares, your cost basis, and the resulting gain or loss.

But here’s the kicker: brokers often report your cost basis as $0 or some other incorrect number.

Why? Because brokers are only required to track the basis for certain types of securities. And for RSUs, unless they’ve integrated with your company’s payroll system (which most don’t), they have no way of knowing the FMV at vesting.

So they leave it blank or report $0. And that’s a big deal!

Let’s look at an example.

• 1,000 RSUs vested on March 1, 2024
• FMV on vesting date: $100/share → $100,000 of W-2 income
• You sell all 1,000 shares on June 15, 2024, for $105/share → $105,000 gross proceeds

What your 1099-B might show:

• Proceeds: $105,000
• Cost basis: $0
• Gain: $105,000

Reality:

• You already paid income tax on $100,000 when the RSUs vested
• Your actual gain is only $5,000 (a short-term capital gain)

If you blindly copy the 1099-B info into your tax return, you’ll overstate your capital gain by $100,000 and pay tax on income you’ve already paid tax on.

The IRS doesn’t mind if your 1099-B is wrong, as long as you fix it.

That’s where Form 8949 comes in.

You’ll need to:

• Report the sale using the 1099-B info, including the incorrect cost basis.
• Adjust the basis by entering the correct number and a code to explain the change.

Let’s build on our earlier example.

What you got from the broker (Form 1099-B):

What you actually report on Form 8949:

Use Code B (basis adjustment) to flag the correction. This indicates to the IRS that the broker didn’t report the correct basis, and you’re correcting it.

This ensures compliance and prevents double taxation.

Incorrect RSU cost basis reporting is one of the most common triggers for IRS tax notices.

When your 1099-B says you made $105,000 in capital gains but you only report $5,000, the IRS’s computers might see a mismatch—unless you correctly use Form 8949 to bridge the gap.

If you don’t fix it:

• You risk a CP2000 notice from the IRS demanding payment for the “missing” tax
• Or worse, you might voluntarily overpay thousands in unnecessary tax

In both cases, you lose.

To correctly calculate the cost basis for RSUs, you’ll need:

• The vesting date of each RSU lot
• The number of shares vested
• The fair market value at vesting
• Any shares withheld for taxes (these are usually not included in your brokerage account)

Most employers provide this in your equity portal (e.g., Fidelity NetBenefits, Morgan Stanley, E*TRADE), or in your pay stub or W-2 supplemental documents.

Tip: If shares were sold on your behalf to cover taxes, those don't affect your cost basis, but they should be reported on your W-2 and visible on your equity portal.

If you’ve received RSUs over multiple years and sell only part of your shares, you may be able to choose which lots to sell. This is known as specific lot identification, and it can help minimize tax liability.

For example:

• Lot A: 1,000 shares vested at $80/share
• Lot B: 1,000 shares vested at $120/share
• Current market price: $100/share

Selling Lot B would generate a capital loss.
Selling Lot A would generate a capital gain.

Choose wisely—and notify your broker in writing at the time of sale if you want to specify the lot.

Even good CPAs and preparers miss RSU basis adjustments. They’re often just entering the numbers from the 1099-B unless you provide them with specific information.

At VIP Wealth Advisors, we frequently encounter this mistake when reviewing new client returns, particularly among TurboTax users and even those from Big Four CPA firms.

You have to provide the correct basis data. Otherwise, the IRS assumes what’s on the 1099-B is gospel.

RSUs from companies that later go public or get acquired can have extra quirks:

• Vesting acceleration at IPO or acquisition
• Different tax withholding timing
• Special merger stock or cash deals

Each scenario has its own set of tax rules and risks. If your shares were swapped, sold in a tender offer, or partially paid in cash, your basis and holding period may become complicated.

Get help from a tax-savvy advisor to untangle it.

• RSU vesting triggers ordinary income, which becomes your cost basis.
• Brokers often report $0 basis on Form 1099-B for RSU shares.
• If you don’t correct it on Form 8949, you’ll pay tax again on money you already paid tax on.
• Always check your equity portal and W-2 to get the real FMV at vesting.
• Don’t rely on TurboTax or your CPA to catch it—you must supply the correct info.

Stock compensation can be a powerful wealth-building tool, but it comes with tax traps.

Get the cost basis wrong, and you’re either overpaying Uncle Sam or asking for a letter from the IRS. Neither is a good outcome.

At VIP Wealth Advisors, we specialize in helping high-income professionals with equity comp navigate these complexities and keep more of what they earn.

If you’ve sold RSU shares in the past year, pull your 1099-B now and double-check the cost basis. A 10-minute review could save you thousands of dollars.