Should stocks to sell to cover stock withholdings has to be reported to IRS? (2024)

• TurboTax Deluxe Online

‎February 17, 202412:46 PM

Yes. You must report the sale of stocks used to cover federal withholding. The stock's cost basis is equal to the FMV of the stock at the date of vesting.

It must be filed for the few shares that were sold. The cost basis and selling price could be close depending since it was sold close to or on the vesting date. This will be a short term sale.

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Thanks for your response. If I opted in net shares option to cover tax withholding automatically by my employer, would I still need to report that to IRS? There were basically 3 options as below. Because I opted in SELL TO COVER, it sold those 12 shares to cover the taxes so did I end up reporting this sale?

My other question, when I sell 28 units, would this be considered as income and I will have to report to IRS and pay taxes again? Would not it be double-taxing?

NET SHARES

Your employer withholds shares to pay your taxes.

SELL TO COVER

Shares are sold to pay your taxes and any commissions or fees.

CASH

Cash in your account is used to pay your taxes.

Yes, this is simply to eliminate an unexpected payment to the IRS and possibly state at tax time. They are still your vested stock that was sold after the vesting date.

1. 28 remaining shares: it will not be double taxing. You will be allowed to use the full fair market value on the vesting date as the cost basis when you sell these shares. The tax will be only on the gain at that time or a loss would reduce your income should that be the result on the sales date.
2. It is a normal practice for employers to help you out by selling a few shares to cover your federal tax and report it to you as federal (and possibly state) withholding on your W-2.

If this took place in 2024 it will happen on that W-2 and 2024 tax return, if it happened in 2023, it will be reported in 2023.

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Thanks, I understand it will not be double taxing when I sell the remaining shares.

So, either my employer withholds shares and report under W2 or I selected sell to cover option which happened in this case and sold those 12 units to cover the taxes, I have to report this to IRS using 1099-B as it shows realized capital gain. In the summary page, it shows $0 realized capital loss/gain though.

It is not shown in my W2 because I opted in "Sell to cover" option so 1099-B was issued by my investment company after it was sold in 2023 at the same day it vested. Is that correct? It is still weird that it is considered as taxable income as it was sold to pay the taxes. 1099-B forms says this is not reported to IRS.

I am just trying to figure out of if it was already under W2, would I still need to report 1099-B separately?

My apologies if my questions do not make sense.

The 1099-B and stock sold must be reported. You received credit for paying taxes so it was income for you, You owned the stock, sold it and for a brief second you had the income and then it was whisked off to the federal government as taxes paid.

I don't see if this is RSU or ESPP or one of the many others. If it is RSU, the whole basis should be in your box 1 wages. If ESPP, you would have a portion you paid plus a portion received as compensation for the basis. There are many options for the type of stock which affects the basis.

A short term sale can even cause a small loss due to the fees paid to sell the stock. Find out what kind of stock you have, how much you paid and how much the employer added to your w2 box 1. We have a lot of great investment articles and one of these is right for helping you.

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i also have a situation where stocks were deducted by the employer to cover taxes and only net stocks were deposited in my brokerage account. However,

1) I don't see that withholding being reported in w2 tax withholding (only my wage withholdings are shown) but the full vesting amount is reported in the income. isn't that wrong? shouldn't the stocks that were net out been included in the withholding else i am paying 1:1 tax extra isn't it?

2) given that only net stocks were deposited, do i have to report the withholdings in 1099b as sale?