Why selling vested RSUs can tax you twice, and how to stop it

Jul 2026 · 5 min read

Your broker hands you a tax form every year, and the IRS already has a copy. For a lot of people with equity comp, that form quietly taxes them on income they already paid tax on. It is one of the most common and most expensive mistakes in an equity-comp return, and it is entirely preventable if you catch it before you file.

Here is the trap in one line. Restricted stock units (RSUs) are taxed once when they vest and again when you sell, but the second tax is only supposed to hit the growth after vesting. If your broker's cost basis is wrong, you pay full tax twice on the same dollars.

How RSUs get taxed

An RSU creates two separate tax events. When your shares vest, meaning they are yours and no longer forfeitable, the market value that day is added to your W-2 as ordinary wages, and your employer withholds tax on it. That is tax event one, and it runs through payroll.

Because that value was already taxed as wages, it becomes your cost basis in the shares. So when you later sell, only the appreciation after the vesting date is a capital gain. The wages you already paid tax on are not supposed to be taxed again.

That is where it breaks. In practice, broker 1099-Bs often leave out the wage portion already reported on your W-2 when they report your basis to the IRS. For an RSU, where you paid nothing out of pocket, that means the 1099-B often shows a cost basis of $0 or blank. Copy that number onto your return and the entire sale price looks like gain. You would be paying capital-gains tax on money that already went through payroll as wages. This is not fraud, and it does not mean you made more money. It is a reporting mismatch between payroll and the brokerage.

The fix is a reconciliation on Form 8949. You report the broker's basis as sent, flag it with code B, and enter the correction as a negative adjustment. The result is your real gain, the $14,400, not the phantom $74,400.

Why a correct return can still get a notice

Even a perfectly reconciled return can draw an IRS notice. The IRS matches the gross sale proceeds on your 1099-B against your return, and its automated system often sees the big proceeds number without following your adjustment math. So a clean return can still generate a CP2000 notice proposing extra tax. The right response is to send your documentation, your Form 8949 and the supporting statements, not to file an amended return. You generally have 30 days to respond, so it is not a fire drill if your records are ready.

Where it goes wrong

• Copying the broker's $0 basis straight onto your return. That is the phantom gain. Always reconcile the basis, usually with a Form 8949 adjustment, using code B when the broker reported a wrong basis to the IRS.
• Using gross shares instead of net. Your employer usually sells some shares at vesting to cover withholding. Your basis is the vesting value times the shares actually delivered to you, not the full grant. Say 100 shares vest at $50: if 30 are sold to cover withholding, you hold 70, and your basis is 70 times $50, or $3,500, even though your W-2 shows the full $5,000.
• Leaning on the broker's supplemental statement alone. Most brokers send a supplemental showing the right basis, but they do not send it to the IRS. Without the Form 8949 adjustment, it does not protect you.
• Confusing this with a non-covered security. If the broker reported no basis to the IRS at all, you enter the correct basis directly instead of using code B. Code B is only for a wrong basis that was reported.

What to check before you file

• Pull your vesting records. What was the share price on each vesting date, and how many shares were actually delivered to you after withholding?
• Compare three numbers: the RSU wages on your W-2, the broker's supplemental statement, and the basis on your 1099-B.
• Confirm your holding period. It starts the day after vesting, which decides whether the gain is long-term.
• Keep the Form 8949 and statements together, in case a notice arrives later.

If you have RSUs that vested and sold this year, the Gnomon Diagnostic maps your vesting values, W-2 inclusions, and broker statements against each other so the phantom gain never reaches your return. Start yours at start.gnomonplan.com.

This is general tax information, not advice for your specific situation. Talk with us or your tax professional before acting on it.