Making sense of taxes on RSUs

[Anonymous]

I can figure this out enough for doing my taxes but it still seems like I am paying on RSUs multiple times.

First, the day the stock vests, the value of the stock (cost that day x number of shares) is reported as W2 income and taxes paid.

When the vested RSUs are sold, this company requires the sell to cover option, selling a percentage (35-40%) of the shares to pay taxes (but wait...weren't taxes already paid?), AND any gains on the sale are also taxed.

So, say you are given 100 RSUs that, on the day they vest, are worth $50 each or $5000.
That day, $5000 is reported as income and taxes paid (Federal, State, Social Security, and Medicare) of $1500 (about 30%).

You decide to sell the 100 shares. The company handling this holds 40 shares to pay taxes and you have 60 shares left to sell. You sell the shares at $60 each, or a profit of $10 per share x 60 shares.

Now it is tax day. The 40 shares for taxes have a net zero (sales price - cost basis) so are not usually listed separately on the W9. The 60 shares remaining had a cost basis of $50 and a sales price of $60 so you report capital gains of $10 x 60 shares, or $600. This is shown as additional income and is taxed.

It seems like taxes are paid on this multiple times and an RSU grant that seems like it is worth $5000 ($50 vest price x 100 shares) only nets you $3600 (60 shares remaining after removing those held for taxes x $60 sales price) and from that you have to subtract the initial taxes paid on the total $5000 value ($1500) and the additional capital gains taxes paid ($600 x 30% = $180) for a net net of $1920.

What is wrong with this picture? Why are taxes paid multiple times?

 

[Anonymous]

I can figure this out enough for doing my taxes but it still seems like I am paying on RSUs multiple times.

First, the day the stock vests, the value of the stock (cost that day x number of shares) is reported as W2 income and taxes paid.

When the vested RSUs are sold, this company requires the sell to cover option, selling a percentage (35-40%) of the shares to pay taxes (but wait...weren't taxes already paid?), AND any gains on the sale are also taxed.

So, say you are given 100 RSUs that, on the day they vest, are worth $50 each or $5000.
That day, $5000 is reported as income and taxes paid (Federal, State, Social Security, and Medicare) of $1500 (about 30%).

You decide to sell the 100 shares. The company handling this holds 40 shares to pay taxes and you have 60 shares left to sell. You sell the shares at $60 each, or a profit of $10 per share x 60 shares.

Now it is tax day. The 40 shares for taxes have a net zero (sales price - cost basis) so are not usually listed separately on the W9. The 60 shares remaining had a cost basis of $50 and a sales price of $60 so you report capital gains of $10 x 60 shares, or $600. This is shown as additional income and is taxed.

It seems like taxes are paid on this multiple times and an RSU grant that seems like it is worth $5000 ($50 vest price x 100 shares) only nets you $3600 (60 shares remaining after removing those held for taxes x $60 sales price) and from that you have to subtract the initial taxes paid on the total $5000 value ($1500) and the additional capital gains taxes paid ($600 x 30% = $180) for a net net of $1920.

What is wrong with this picture? Why are taxes paid multiple times?

By no means am I a tax expert but I think you get taxed the first time in your example as ordinary income, the second tax is when you sold is capital gains. That should be the only taxes you are paying. The withholding is just that it is not actually taxes it is to cover what the taxes would be when you settle up on April 15. If, for whatever reason the amount of shares that the company withheld did not cover your tax burden you would than be taxed on the difference.