What To Do If Brokerage Firms Don’t Report Wash Sales for RSUs
April 05, 2024The amount of data that flows through the services of large record-keeping institutions is mind-blowing. But, as much as we rely on them for accuracy in reporting, we also need to record and monitor our own cost basis for tax purposes.
Restricted Stock Units (RSUs) are a popular form of employee (stock) compensation many companies use. RSUs allow employees to earn stock in their company over time, often as a reward for meeting performance targets. However, when it comes time to report these RSU awards on tax returns combined with the subsequent purchases and sales of the company or other stock, many employees can be confused and frustrated with broker reporting. Careful planning can help maximize your return and prevent costly mistakes.
Cost basis is the original price for a given security, whether purchased or vested. The cost basis of stock from an RSU is typically the fair market value at the time of vesting. When the stock (received after vesting of RSUs) is ultimately sold or transferred, either in part or in full, the cost basis is used to determine the taxable gain or loss on the transaction.
A wash sale occurs when you sell or trade stock or securities at a loss, and within 30 days before or after that sale you:
- Buy substantially identical stock or securities (SISS) {vesting is buying for this},
- Acquire SISS or securities in a fully taxable trade,
- Acquire a contract or option to buy SISS, or
- Acquire SISS for your IRA, Roth IRA, SEP, or Simple,
- Sell stock, and your spouse or a corporation you control buys a substantially identical position.
If your loss was disallowed because of the wash sale rule, all is not lost! You would add the disallowed loss to the cost of the new stock or securities (not meaningful in an IRA because there is no gain or loss to tax on a sale). The result is an increase to your basis in the new stock or securities. This adjustment postpones the loss deduction until the new stock or securities are sold. Your holding period for the new stock or securities includes the holding period of the stock or securities sold (long-term vs. short-term).
Check out Example 2 from IRS Publication 550 on page 60:
You are an employee of a corporation with an incentive pay plan. Under this plan, you are given 10 shares of the corporation’s stock as a bonus award. You include the fair market value of the stock in your gross income as additional pay. You later sell these shares at a loss. If you receive another bonus award of substantially identical stock within 30 days of the sale, you cannot deduct your loss on the sale. (Unless you sell all of the SISS, including the most recent grant.)
Unfortunately, firms may not and are not required to report wash sales cost basis for equity compensation, such as RSUs. This lack of reporting makes it difficult for employees to accurately report these types of sales on their taxes. In the absence of wash sale reporting, employees should take steps to keep accurate records of their RSU/stock activities. This includes recording the grant date, the fair market value at the time of vesting, and any subsequent sales or transfers of the stock from RSUs or purchase of the same stock outside of the employee RSU benefit. If the stock generates dividends, those would also need to be recorded. By maintaining these records, you’ll have the information you need to report activity on your taxes accurately.
Brokers are also not required to calculate wash sales on options trading.
Lastly, suppose you hold the same stock or a substantially similar investment (like a mutual fund or ETF) through other brokerage firms, and a wash sale is triggered. In all wash sale cases, you must manually calculate and report when filing tax returns. You would gather all your account activity and 1099b forms from multiple brokerages and use Form 8949 to report buy/sale information for your taxes.
The lack of reporting by firms for RSUs has created a significant burden for employees and tax professionals. Until more comprehensive reporting requirements are implemented, employees should take the necessary steps to keep accurate records of RSU activities to avoid any tax issues. Consult with a tax professional if you have any questions or are unsure how to proceed, especially if you live or work in multiple states and countries. By making informed decisions, you can maximize your returns and minimize your taxes regarding RSU investments.
Topic No. 409, Capital Gains and Losses | Internal Revenue Service (irs.gov)
About Form 8949, Sales and Other Dispositions of Capital Assets | Internal Revenue Service (irs.gov)