How to Enter RSU Sales in TurboTax

Receiving Restricted Stock Units (RSUs) is an exciting employee benefit, but selling them creates a tax situation that can be easy to mishandle. The biggest risk is accidentally paying taxes twice on the same income. This guide walks you through exactly how to enter your RSU sales in TurboTax correctly, ensuring you report accurately and avoid overpaying the IRS.

Understanding Your RSU Tax Documents

Before you log into TurboTax, you need to gather two key documents: your Form W-2 from your employer and your Form 1099-B from your brokerage account. These two forms tell the complete story of your RSU income, but they do it in separate ways. Understanding what they show is the first step to getting this right.

1. Form W-2: Wage and Tax Statement

When your RSUs vest (meaning, when they become legally yours), their value is considered ordinary income, just like your salary. Your employer reports this amount on your W-2. Here's where to look:

• Box 1 (Wages, tips, other compensation): This box includes the total market value of your vested RSUs.
• Boxes 3, 5, and 16: The RSU income is also included in your Social Security, Medicare, and state wages.
• Box 14 (Other): Many employers use this box to specifically break out RSU income, often labeling it "RSU" or something similar. If it’s not here, check your final paystub or any supplemental compensation statements provided by your employer.

The crucial point is this: you have already paid income and payroll taxes on this amount through your employer's withholding. This is the ordinary income part of the transaction. Forgetting this fact is what leads to double taxation later.

2. Form 1099-B: Proceeds from Broker and Barter Exchange Transactions

When you sell your RSU shares, your brokerage firm issues a Form 1099-B. This form reports the details of your stock sale to you and the IRS. You’ll need to pay close attention to these boxes:

• Box 1d (Sales proceeds): This is the total amount of money you received from selling the shares.
• Box 1e (Cost or other basis): This is where things get tricky. The cost basis is what you paid for the stock. For RSUs, your "cost" is the value you already recognized as income on your W-2 when the shares vested.

Unfortunately, many brokerage firms report a cost basis of $0 or a very small incorrect amount on Form 1099-B. They do this because they don't know what amount your employer reported on your W-2. If you simply copy the 1099-B details into TurboTax without making a correction, the software will calculate your capital gain using the wrong ($0) basis. This results in the entire sale proceeds being treated as a capital gain, even though you already paid ordinary income tax on that same value. This is the double-taxation trap.

The Two Taxable Events for Every RSU

To really grasp why that 1099-B adjustment is so important, you need to understand the two distinct taxable events involved with every RSU.

1. Vesting: The Ordinary Income Event. The moment your RSUs vest, you haven't sold anything, but the IRS considers it a transfer of value from your employer to you. You are taxed on the Fair Market Value (FMV) of the shares on the vesting date.
   Calculation: Shares Vested x Price per Share on Vesting Date = Ordinary Income (Included on W-2)
   This amount becomes your cost basis for the shares.
2. Selling: The Capital Gain/Loss Event. This occurs when you sell the vested shares. You're taxed only on the difference between the sale price and your cost basis (the value at vesting you already paid tax on).
   Calculation: Sale price - Value at Vesting = Capital Gain or Loss
   This is what your 1099-B is supposed to help you report, but it requires your manual correction.

How to Enter Your RSU Sale in TurboTax: A Step-by-Step Guide

Now, let's walk through the actual data entry process in TurboTax. Whether you use the online or desktop version, the steps and terminology are very similar.

Step 1: Navigate to the Investment Income Section

Once you are in your return, follow this path:

• Select Federal Taxes (or Wages & Income in some versions).
• Scroll down and find the Investments and Savings section.
• Locate the line item for Stocks, Mutual Funds, Bonds, Other (1099-B) and click "Start" or "Revisit."

Step 2: Enter Your Form 1099-B Information

TurboTax will ask how you want to add your 1099-B info. You can either import it directly from your broker or type it in yourself. Let's assume you're entering it manually.

• Select "I'll type it in myself."
• Enter the Brokerage Name (e.g., E*TRADE, Fidelity).
• You'll be brought to a screen to enter the details for each sale. You can enter each sale individually or as a summary. For RSUs, entering each sale transaction from your 1099-B separately is often clearer.
• Carefully copy the information from your 1099-B:
  • Description of property (e.g., 50 shares of YOURCOMPANY stock)
  • Date acquired (this is the vesting date)
  • Date sold (from your 1099-B)
  • Sales proceeds (Box 1d from your 1099-B)

Step 3: The Critical Step – Correcting the Cost Basis

This is the most important part of the entire process. On the same screen where you entered the proceeds, you will see a field for the Cost Basis (Box 1e). Enter the incorrect basis from your 1099-B here, even if it's $0.

Next, you must tell TurboTax that this basis is wrong and needs to be adjusted. Check the box that says something like, "The cost basis is incorrect or missing on my 1099-B." Alternative phrasings you might see include "I need to adjust the cost basis" or similar prompts.

After you check this box, click "Continue." TurboTax will take you to a new screen titled "We need to adjust your [Brokerage Name] cost basis." On this page, here's how to proceed:

1. Find your correct cost basis. This is the total value of your shares when they vested. You can find this detailed in the trade confirmation or supplemental RSU statement from your broker, or calculate it yourself:
   Number of Shares Sold x Market Price on Vesting Date = Your Correct Cost Basis
   Remember, this amount should closely match the RSU income amount reported on your W-2. Don't forget to add any selling commissions or fees to the basis.
2. Go to the "Adjusted Cost Basis" screen. TurboTax will guide you here after you indicated the 1099-B basis was wrong.
3. Enter the correct cost basis figure. In the box provided, type the correct cost basis you just calculated.

TurboTax automatically calculates the difference between the brokerage-reported basis and your correct basis. It reports this correctly on IRS Form 8949 (Sales and Other Dispositions of Capital Assets), using adjustment code "B" to inform the IRS that the basis reported by the broker was incorrect and you have corrected it. This ensures your capital gain or loss is calculated on the change in value after you vested, preventing you from paying capital gains tax a second time on your compensation.

Common RSU Tax Traps and How to Handle Them

Even with the steps above, a few common scenarios can cause confusion. Here's how to stay ahead of them.

Understanding 'Sell-to-Cover' Transactions

Most employers use a "sell-to-cover" system where they automatically sell a portion of your vested shares to pay for the initial income tax withholding. For example, if 100 shares vest, your company might immediately sell 30 of them to cover taxes and deposit the remaining 70 shares in your account.

This "sell-to-cover" event is a real stock sale, and you will receive a 1099-B for it. You must report this sale in TurboTax using the same cost basis adjustment method described above. Because the sale happens on the same day as vesting, the sales price is usually equal to the vesting price. This means your capital gain or loss after the basis correction should be zero or very close to it.

Holding Shares After They Vest

If you don't sell your RSUs on the day they vest, your situation changes slightly. The taxable event at vesting remains the same—you still have ordinary income on your W-2 for the vesting day value.

When you eventually sell the shares weeks, months, or years later, the capital gain or loss is the difference between the sale price and the value on the day they vested (your cost basis). Once again, your 1099-B might show a $0 cost basis, so the adjustment in TurboTax is still required. The only new factor is whether the gain/loss is short-term (held for one year or less after vesting) or long-term (held for more than one year after vesting).

Final Thoughts

Entering your RSU sales in TurboTax correctly boils down to one essential action: adjusting the cost basis from your 1099-B to match the ordinary income already reported on your W-2. Following this guide ensures that you only pay capital gains tax on the profit an investment earns, not on income you've already been taxed on.

As a tax professional, staying current on nuanced topics like equity compensation allows you to provide high-value advisory work that clients remember. When complex questions about RSUs, stock options, or multi-state filings arise, having instant access to accurate answers is key. With Feather AI, you can ask plain-language questions and get audit-ready answers backed by IRS code and state regulations in seconds, freeing you up to focus on client strategy instead of manual research.