How to Report RSU on Tax Return | Tax Compliance Guide

What Are RSUs and When Are They Taxed?

Restricted Stock Units (RSUs) are company-granted shares that "vest" (become yours) over time. Unlike stock options, RSUs have no upfront cost. However, they are taxed as supplemental income when they vest.

Key RSU Tax Events:

Vesting Date: The day you gain ownership of the RSUs. The fair market value (FMV) of the shares is taxed as ordinary income.
Sale of Shares: If you sell vested shares, any profit (or loss) is subject to capital gains tax.

Example

If 100 RSUs vest when the stock is $50/share, you'll report $5,000 as taxable income.

Step 1: Report RSU Income as Supplemental Wages

When RSUs vest, your employer will likely withhold taxes (federal, state, Social Security, and Medicare) and report the income on your Form W-2 (Box 1, 3, 5, and Box 12 Code V).

Pro Tip: Confirm the income matches your W-2. Discrepancies may arise if your employer uses an external payroll provider.

How to Report RSU Income on Your Tax Return:

Form 1040 : Include the taxable value of vested RSUs under Wages, Salaries, Tips (Line 1)
Form 8949 & Schedule D: Required only if you sell shares

Step 2: Understand Form 3921 for RSU Tax Reporting

Your employer will send Form 3921 (Transfer of Stock Acquired Through an Employee Stock Purchase Plan) if RSUs vested during the tax year. This form details:

Number of shares transferred
FMV per share on the vesting date
Exercise price (typically $0 for RSUs)

Note:Form 3921 is for informational purposes only. You don't file it with your return, but use it to verify income and cost basis.

Step 3: Calculate Capital Gains/Losses When Selling RSUs

If you sell vested shares, you'll owe taxes on the profit (FMV at sale minus FMV at vesting).

Short-Term vs. Long-Term Capital Gains:

Holding Period	Tax Rate	Details
Short-Term (≤1 year)	Up to 37%	Taxed as ordinary income
Long-Term (>1 year)	0-20%	Based on taxable income

Example

You sell shares 18 months post-vesting for $70/share (original FMV: $50). Your $20/share profit is taxed at long-term rates.

Step 4: Account for State RSU Tax Rules

State taxes vary for RSUs:

Residency Status: Some states tax RSUs based on vesting location or residency
California and New York: Tax RSUs as income even if you move post-vesting
Texas and Florida: No state income tax

Consult a tax professional if you've relocated during the vesting period.

Common RSU Tax Mistakes to Avoid

Double Taxation Fears: RSUs are taxed only once as income (at vesting)
Missing Cost Basis Adjustments: Brokers may report $0 cost basis
Ignoring AMT: Confirm if exercising other equity types

Tax-Saving Strategies

Hold shares for long-term capital gains rates
Use tax-loss harvesting strategies
Consider charitable donations of appreciated shares

FAQs About RSU Tax Reporting

1. Do I Pay Taxes on RSUs When They Vest or When I Sell?

Taxes apply at vesting (ordinary income) and at sale (capital gains).

2. What If My Employer Didn't Withhold Enough Taxes?

You may owe additional taxes when filing. Adjust withholdings or make estimated payments.

3. How Do RSUs Affect My Tax Bracket?

Vested RSUs increase your taxable income, potentially pushing you into a higher bracket.

Conclusion: Stay Compliant and Optimize RSU Tax Outcomes

Reporting RSUs on your tax return involves accurately declaring vesting income, adjusting cost basis for sales, and leveraging tax-saving strategies. Always cross-reference your W-2 and Form 3921, and consult a tax advisor for complex cases.