RSU Tax Guide · High impact
The $0 cost-basis trap: how to avoid being taxed twice on RSUs
This is the most expensive — and most common — RSU filing mistake. Advisors say even CPAs miss it. Here's exactly what happens and how to fix it.
How the double tax happens
- Your RSUs vest. The fair-market value (say $100,000) is added to your W-2 and you pay ordinary income tax on it.
- The shares land in your brokerage account. Because the broker didn't "buy" them, it doesn't know your basis.
- You sell. The broker issues a 1099-B reporting cost basis as $0 (or blank).
- If you file it as-is, the IRS sees a capital gain equal to the entire sale proceeds — and you pay capital-gains tax on income you already paid wage tax on. That's the double tax.
The fix (one line on Form 8949)
Your true cost basis is the FMV at vest — the same figure already on your W-2. To correct it:
- Find your broker's supplemental information statement (not the main 1099-B — it's usually in the back pages). Look for "Adjusted Cost Basis."
- On Form 8949, report the sale as shown on the 1099-B, then put Code B in column (f) and the basis adjustment in column (g).
- Result: your taxable gain drops to just the appreciation after vest (often near $0 for a same-day sale).
If you sold the same day you vested, your real gain is roughly zero — so reporting a $0 basis could cost you tax on the full sale for no reason. Always adjust.
FAQ
Why does my 1099-B show $0 cost basis for RSU shares?
Brokers are not required to report an adjusted cost basis for "non-covered" securities like RSU shares, so many report $0 or only what you paid (nothing). The correct basis is the fair-market value at vest, which was already taxed as W-2 income.
How do I fix it on my tax return?
On Form 8949, report the sale with the 1099-B values, then enter adjustment Code B in column (f) and the correction in column (g) so your basis equals the FMV at vest. Use your broker’s supplemental (adjusted-basis) statement to get the number.
How much can this mistake cost?
A lot. If you sell $100,000 of shares reported with a $0 basis, you could pay 15–20%+ capital-gains tax on income you already paid wage tax on — potentially $15,000–$20,000 of double tax per sale.