what is the cost basis for restricted stock units

Cost basis for Restricted Stock Units (RSUs)

This article answers the core question: what is the cost basis for restricted stock units and why it matters when you sell shares that came from RSUs. Early in the piece you will learn how fair market value at vesting sets your basis, how withholding and sell-to-cover affect per-share basis, how to reconcile W-2 income and broker 1099‑B reporting, and practical examples for common sell scenarios.

Overview of RSUs and taxable events

Restricted Stock Units (RSUs) are a form of equity compensation where an employer promises to deliver company stock (or cash equal to stock value) to an employee when certain conditions are met — usually vesting based on time or performance. The timeline typically includes: grant (award), vesting date (right to receive shares), and delivery (issuance of shares to your brokerage/plan account).

For most U.S. public-company RSU programs, the primary taxable event is vesting/delivery: when RSUs vest and the employer delivers shares (or cash), the fair market value (FMV) of the shares on the vesting/delivery date is included in your ordinary income. That FMV also establishes your cost basis for capital-gains purposes when you later sell those shares.

What is the cost basis for restricted stock units? In short: it is generally the FMV of the shares on the date they are delivered or vested and reported as ordinary income.

Definition of cost basis

Cost basis (tax basis) is the starting value used to compute gain or loss when you sell an asset. For RSU-acquired shares, the basic rule is straightforward: the cost basis equals the fair market value of the shares on the vesting/delivery date, the amount that is treated as compensation income and included on your Form W‑2.

Because the RSU vesting amount is recognized as ordinary income, the income inclusion both increases your taxable wages and simultaneously sets the per-share cost basis for later capital gains calculations.

How cost basis for RSUs is determined

The usual process used by employers and brokers follows these steps:

• On the vesting/delivery date the employer determines the fair market value (FMV) per share — typically the closing stock price on that date or the plan-determined price if an intraday valuation is used.
• The FMV per share multiplied by the number of vested shares equals the compensation income recognized and reported on your W‑2.
• That same FMV per share is your cost basis per share for capital-gains purposes when you later sell — unless there are adjustments for withheld or sold shares to cover taxes.

What is the cost basis for restricted stock units? Repeating the rule: it is the FMV at vesting/delivery that appears as ordinary income on your W‑2, and that FMV becomes the starting cost basis for capital gains.

Treatment when shares are delivered vs. cash-settled RSUs

• Stock-settled RSUs: Employer issues actual shares to your brokerage or company plan account when RSUs vest. The FMV of those shares at vesting becomes your W‑2 income and your cost basis.

• Cash-settled RSUs (or RSUs settled in cash): Employer pays you cash equal to the value of the vested RSUs rather than issuing shares. In that case you have ordinary income equal to the cash paid and no stock cost basis because you didn’t receive shares — you have cash proceeds instead.

What is the cost basis for restricted stock units that are cash-settled? If you receive cash, the concept of a per-share cost basis does not apply — you have ordinary income and the cash is taxed as wages.

Effect of share withholding or sell-to-cover for taxes

Employers commonly satisfy required payroll tax withholding for RSUs through one of these methods:

• Net-share settlement (shares withheld): Employer withholds a portion of the vested shares to cover tax withholding and issues you the net remaining shares.
• Sell-to-cover: Employer or plan broker sells a number of shares immediately at vesting to generate cash to pay withholding, and gives you the remaining shares.
• Optional sell-all: Employee elects to sell all vested shares at vesting (immediate sale) and receive cash after taxes.

Important rules about cost basis when withholding or sell-to-cover occurs:

• Your taxable ordinary income is still based on the full FMV of all vested shares at vesting, not just the net shares you receive.
• The cost basis for the shares you keep is the FMV at vesting per share.
• If some shares were sold at vesting to cover taxes, the proceeds from those sold shares must be matched with the same FMV-driven basis for accurate gain/loss reporting.

Example: 100 RSUs vest when FMV is $50 per share. Ordinary income = 100 × $50 = $5,000. If the employer withholds 30 shares (for taxes) and delivers 70 shares to you, your cost basis for the 70 shares you received is $50 per share. The 30 withheld shares are treated as having been delivered and sold for tax purposes; their FMV was included in your wages and must be reconciled with any sale proceeds the employer/broker reports.

What is the cost basis for restricted stock units when some shares are withheld? The per-share basis remains the FMV at vesting, but your total basis across all originally vested units equals FMV × vested units, allocated across shares kept and shares withheld/sold.

Taxation timeline and holding period

• Ordinary income recognition: RSU vesting/delivery triggers ordinary income tax on the FMV of the vested shares; that amount is typically included on your Form W‑2 in the year of vesting.
• Cost basis set: The FMV at vesting becomes the cost basis for capital taxation.
• Holding period begins: The holding period for capital gains (short-term vs long-term) generally begins on the vesting/delivery date.

If you sell the shares within one year after the vesting date, any gain or loss is short-term and taxed at ordinary income tax rates. If you sell more than one year after the vesting date, gains are long-term and eligible for lower long-term capital gains rates (subject to tax rules and your income level).

What is the cost basis for restricted stock units relative to holding period? The cost basis is fixed at vesting and the holding period also begins at vesting — both are anchored to the same date.

Reporting and tax forms

Key reporting items to watch for:

• W‑2: Your employer should include the FMV of vested RSUs in your taxable wages (Box 1) and in the appropriate boxes for Social Security and Medicare withholding. This amount reflects ordinary income from vested RSUs.

• Form 1099‑B: When you sell shares from a brokerage account (including shares delivered from RSUs), the broker typically issues Form 1099‑B reporting proceeds from sales. Brokers sometimes report basis information on the 1099‑B, but often the broker does not reflect the proper basis for RSU shares because the broker is not always informed of the income already reported on your W‑2.

• Form 8949 and Schedule D: You must reconcile 1099‑B sales with the basis reflected on your W‑2 when completing Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses). If the broker's 1099‑B shows incorrect or zero basis, you must adjust reported amounts so you don't pay tax twice on the same income.

What is the cost basis for restricted stock units when the broker 1099‑B shows no basis? You must use the FMV-at-vesting basis (the amount on your W‑2) on Form 8949 and explain the adjustment so the sale's gain is calculated using the correct basis.

Common broker reporting mismatches and required corrections

Typical mismatches include:

• Broker 1099‑B lists zero or partial cost basis for RSU shares sold because the broker did not receive income information from your employer.
• Broker reports a basis equal to the sale proceeds for shares sold at vesting (sell-at-vest) — causing confusion if not reconciled correctly.

How to correct mismatches:

• Use your employer's vesting statements, W‑2 details, and brokerage transaction history to determine the FMV at vesting and the per-share basis.
• On Form 8949, you may need to enter an adjustment code (for most taxpayers, code B or C depending on whether basis was reported correctly) and the adjustment amount that sets the correct gain or loss.
• Keep documentation (payroll vesting statements, year-end RSU summaries, W‑2s, broker trade confirmations) in case of IRS questions.

As of June 2024, according to Charles Schwab guidance, employers and brokers still commonly produce mismatches that taxpayers must reconcile when RSU shares are sold; careful recordkeeping at vesting simplifies later reporting.

Calculating gain or loss when you sell RSU shares

The basic capital gain/loss formula is:

Proceeds from sale − cost basis = capital gain or loss

Because cost basis for restricted stock units is usually the FMV at vesting, compute the cost basis per share using that FMV and multiply by the number of shares sold.

Examples below illustrate common scenarios.

Example 1 — Shares vest and sold same day (sell-at-vest)

• RSUs vest: 100 shares, FMV at vesting = $40 per share. Ordinary income = 100 × $40 = $4,000 (included on W‑2).
• Immediate sale at the same time: Broker sells 100 shares at $40 per share (proceeds $4,000) to cover taxes or by election.

Tax result:

• Ordinary income = $4,000 (reported on W‑2).
• Capital gain/loss = Proceeds ($4,000) − basis ($4,000) = $0. No additional capital gain or loss from the sale if sold at exactly vesting FMV.

Note: If the shares are sold the same day at a slightly different price, a small short-term gain or loss may result.

Example 2 — Shares vest, withholding, remaining shares sold later

• RSUs vest: 100 shares, FMV at vesting = $50 per share. Ordinary income = $5,000.
• Employer withholds 25 shares to cover taxes and delivers 75 shares to you.
• You sell the 75 shares six months later at $70 per share.

Tax result:

• Ordinary income = $5,000 (W‑2).
• Cost basis for the 75 shares you held = $50 per share; total basis = 75 × $50 = $3,750.
• Sale proceeds six months later = 75 × $70 = $5,250.
• Capital gain = $5,250 − $3,750 = $1,500 (short-term because sold within one year of vesting).

The 25 withheld shares were included in ordinary income at vesting; any proceeds the employer/broker received for those shares when withholding was executed should be reconciled on your tax return. Brokers sometimes report proceeds for withheld/sold shares on Form 1099‑B, and you should ensure the basis for those shares is set equal to FMV at vesting so you don't pay tax twice.

Example 3 — Long-term gain after >1 year hold

• RSUs vest: 200 shares, FMV at vesting = $30 per share. Ordinary income = $6,000.
• You hold the 200 shares for 14 months and then sell at $80 per share.

Tax result:

• Cost basis = 200 × $30 = $6,000.
• Sale proceeds = 200 × $80 = $16,000.
• Capital gain = $16,000 − $6,000 = $10,000 (long-term capital gain because sale occurred more than one year after vesting).

Special situations and adjustments

When RSUs are subject to Section 83(b)

Section 83(b) election allows an employee who receives restricted stock (actual shares, i.e., restricted stock awards or RSAs) to elect to include the value of restricted stock in income at grant rather than at vesting. This election is rarely relevant for RSUs because RSUs are promises to deliver shares at vesting; RSUs generally cannot be the subject of an 83(b) election. Only when you receive actual restricted shares (RSAs) at grant might an 83(b) make sense.

If you have RSAs and timely file an 83(b) election, you include the FMV at grant in income, and that grant FMV becomes your cost basis. The holding period starts at grant rather than vesting. Because RSUs normally do not involve immediate transfer of shares at grant, the 83(b) election does not typically apply.

What is the cost basis for restricted stock units under an 83(b)? For RSUs the election is generally not available; for RSAs with an 83(b) the basis is the grant-date FMV.

Deferred delivery under Section 409A or other plan deferrals

Some plans allow deferral of delivery after vesting or contain special rules under Section 409A of the Internal Revenue Code. If delivery is deferred beyond vesting, the tax timing and basis rules can be more complex:

• If the grant or plan causes a constructive receipt or deferred payment event, income recognition could occur at settlement, or a separate tax rule could apply.
• The cost basis might be set at the date of constructive receipt or actual delivery depending on plan terms and tax law.

These scenarios are plan-specific and may require review by a tax advisor and careful reading of plan documents.

Employer-provided share-lending, DRIP, or fractional shares

• Dividend reinvestment (DRIP): If your company offers a dividend reinvestment program for vested RSU shares, reinvested dividends generally create additional cost basis for the new fractional shares equal to the dividend amount reinvested.
• Fractional shares: When withholding or sell-to-cover leaves fractional shares, brokers may cash-out fractions. The basis allocation for fractional shares follows the per-share basis rules and any proceeds from cashing out must be reconciled with your wage inclusion.
• Share lending or margin activity: If you use shares as loan collateral or for short-selling activities, special tax rules may apply and cost-basis tracking can be complicated.

Record any plan-specific actions clearly and retain plan statements for accurate tax reporting.

Common mistakes and pitfalls

Frequent errors taxpayers make include:

• Failing to include FMV-at-vesting in basis: Treating the basis as zero or the purchase price when the employer already reported ordinary income.
• Not adjusting broker 1099‑B: Accepting the 1099‑B at face value when the broker omitted the W‑2 basis information.
• Duplicate taxation: Paying capital gains tax on the same income already included on W‑2 because the basis was not adjusted.
• Misunderstanding withholding: Assuming withheld shares relieve you of reporting obligations — they do not; the FMV of all vested units is taxable income even if some shares were withheld.
• Underestimating estimated taxes: RSU vesting can create a large tax withholding gap if payroll withholding is insufficient; plan to make estimated tax payments or increase withholding.

What is the cost basis for restricted stock units when errors occur? Mistakes generally lead to overpaid taxes unless corrected on your returns using Form 8949 adjustments and supporting documentation.

Tax planning strategies involving RSU cost basis

Common planning choices to manage taxes and risk include:

• Sell-to-cover vs hold: Sell-to-cover reduces equity concentration risk by selling shares at vesting to pay taxes and diversify. Holding may allow for long-term capital gains if you believe in share appreciation and can tolerate risk.
• Immediate sale (sell-at-vest): If you sell all vested shares immediately, you convert the compensation into cash and eliminate market risk; capital gain/loss is often minimal if sale price equals vesting FMV.
• Use estimated tax payments or increase withholding: Large RSU vesting events may require additional tax payments to avoid underpayment penalties.
• Tax-loss harvesting: If shares decline after vesting, you may be able to harvest losses to offset gains; basis is still the FMV at vesting so realized losses will reflect that basis.

These are strategic considerations rather than individualized advice; consult a tax professional for personal planning.

Recordkeeping and documentation

Maintain comprehensive records, including:

• Grant agreements and plan documents showing vesting schedule and settlement mechanics.
• Employer vesting statements indicating number of vested units and FMV used.
• Year-end RSU summary from your employer or equity plan administrator.
• Form W‑2 showing the RSU-related wage inclusion.
• Brokerage trade confirmations and 1099‑B forms for sales.

Good records make it straightforward to demonstrate the correct cost basis and resolve broker 1099‑B mismatches.

Differences by jurisdiction and international considerations

This guide focuses on U.S. federal tax treatment. Other countries treat RSUs differently: timing of taxation, withholding obligations, and cost-basis rules can vary significantly. If you live or work outside the U.S. or hold shares in a foreign employer, consult local tax guidance or a cross-border tax advisor.

Frequently asked questions (FAQ)

Q: Can I change the cost basis for my RSU shares?

A: Generally no. Cost basis for RSU shares is set by the FMV on the vesting/delivery date and cannot be changed except for legitimate adjustments (e.g., reinvested dividends, wash-sales, or corrected employer/broker reporting). If a broker reported incorrect basis, you must correct it on your tax return; you are not changing the underlying economic basis but ensuring the correct basis is reported.

Q: What if my broker reports a different basis on Form 1099‑B?

A: You must reconcile differences using your W‑2 and vesting records. On Form 8949, report the sale with the correct basis and enter an adjustment to account for the basis that should have been reported by the broker. Keep documentation.

Q: Do RSUs get an 83(b) election?

A: RSUs generally cannot use an 83(b) election because RSUs are a promise to issue shares at vesting, not immediate restricted stock. Only restricted stock awards (RSAs) that deliver shares at grant may qualify for an 83(b) election.

Q: When does the holding period for capital gains start?

A: The holding period typically starts on the vesting/delivery date, which is also when FMV becomes ordinary income and your cost basis is set.

References and further reading

This article synthesizes guidance commonly provided by financial firms and tax resources. As of June 2024, according to Charles Schwab and myStockOptions materials, the FMV-at-vesting rule and the need to reconcile W‑2 wage inclusion with broker 1099‑B reporting remain core practices. Readers should consult employer plan documents and IRS guidance for authoritative details and consider a tax advisor for complex situations.

Sources referenced in preparing this guide include Charles Schwab, Morgan Stanley, myStockOptions, NerdWallet, and specialist compensation guides (consult plan materials for plan-specific rules).

Practical checklist: What to do at vesting and before a sale

• At vesting: obtain and save your plan/vesting statement showing FMV and the number of vested shares.
• Check your W‑2: confirm the RSU amount is included in Box 1 wages (and applicable boxes for federal and payroll withholding).
• If shares were sold at vesting to cover taxes, obtain the broker confirmation showing proceeds and taxes paid.
• Before selling: compute cost basis per share as FMV at vesting and maintain documentation to reconcile broker reporting.
• After sale: report the sale on Form 8949/Schedule D using the FMV-based basis; if 1099‑B shows incorrect basis, make the required adjustment.

Example walk-throughs (numeric recap)

1. Sell-at-vest: 50 RSUs vest at $60 – ordinary income $3,000, immediate sale at $60 = $3,000 proceeds, capital gain $0.

2. Withholding: 200 RSUs vest at $25 – ordinary income $5,000; 40 withheld for taxes, 160 delivered to you. You later sell 160 at $30: proceeds $4,800; basis $4,000; short-term gain $800.

3. Long-term hold: 100 RSUs vest at $20 – basis $2,000. You sell after 18 months at $100 — proceeds $10,000; basis $2,000; long-term gain $8,000.

Common pitfalls to avoid

• Don’t ignore your W‑2: the W‑2 inclusion is central to setting correct basis.
• Don’t trust a blank or zero basis on 1099‑B: verify and correct if needed.
• Don’t forget withholding or employer sales may have produced proceeds that you need to reconcile.
• Don’t assume RSUs are the same as restricted stock awards (RSAs) — the 83(b) election and some basis issues differ.

Further steps and Bitget note

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Final guidance and next actions

To summarize: what is the cost basis for restricted stock units? It is generally the fair market value of the shares on the date they are vested/delivered and that FMV is the amount reported as ordinary income on your W‑2 and used as your cost basis for capital gains when you later sell.

Action steps:

• Save vesting statements and W‑2 details at vesting.
• When you sell, use FMV-at-vesting as your basis and reconcile any 1099‑B mismatches on Form 8949.
• If you anticipate large vesting events, consult a tax advisor and consider tax-withholding or estimated payments to avoid underpayment penalties.

Explore Bitget Wallet to manage any crypto holdings you may pair with traditional investments, and consult your employer plan documents or a qualified tax professional for plan-specific or cross-border issues.

As of June 2024, according to Charles Schwab and myStockOptions reporting, RSU tax reporting continues to require careful reconciliation between employer wage reporting and broker sale reporting; accurate records at vesting simplify later reporting and prevent double taxation.