Why the 1099-B is wrong
When RSU shares vest, their value is taxed as pay on your W-2. That value is your cost basis. But brokers are generally not allowed to include income that was already taxed as wages in the basis they report. So the basis on Form 1099-B often shows as $0, is left blank, or is marked as not reported to the IRS.
If you file with that number, the whole sale price looks like a gain, and you pay tax on the same money twice: once on the W-2 and again as a capital gain.
What it costs
| You sell 200 RSU shares for $96,210 | Reported gain |
|---|---|
| Basis as reported: $0 | $96,210 |
| Correct basis: value at vest, $94,800 | $1,410 |
In this example, the uncorrected return overstates the gain by almost $95,000.
How to fix it
- Find the supplemental statement from your stock plan broker. It lists the vest date, the value at vest and the adjusted basis for each lot.
- Report each sale on Form 8949, enter the correct basis, and use adjustment code B to show that the basis on the 1099-B was incorrect.
- Check sell-to-cover sales too. Shares sold at vest to pay the tax appear on the 1099-B and should show little or no gain.
ESPP shares have the same problem: the discount taxed on your W-2 has to be added to the basis. See ESPP taxes for how that works.
If you already got a letter
A CP2000 is a notice proposing changes because your return did not match what your broker reported. If the gap comes from cost basis, do not just pay it. Respond with the corrected basis and supporting statements. Many of these notices are reversed once the right numbers are shown, and we can prepare that response for you.