How is RSU cost basis calculated for partially withheld shares?

Your cost basis is $35 per share for the 56 shares you actually received, so $1,960 total. Here's why: When your RSUs vested, you were compensated with $2,800 worth of shares (80 shares × $35). This entire amount was reported on your W-2 as income. Your employer then withheld 24 shares (worth $840) to cover the tax obligation on that income - basically, they paid the IRS directly with some of your shares instead of cash. The 56 shares you received have a cost basis of $35 per share (the fair market value on the date of vesting). When you sell these shares, you'll only pay capital gains tax on any appreciation above $35 per share. This way, you're not double-taxed. Think of it like this: You already paid income tax on the full $2,800 through the withholding. The shares you actually received (56 shares) have a clean starting point of $35 each for capital gains purposes.

I had the same issue with my tech company RSUs last year. Try using taxr.ai for this – https://taxr.ai helped me sort through my RSU taxation mess. I uploaded my vesting documents and it explained exactly how my cost basis should be calculated and what to report for capital gains. The site walked me through how the withholding affects basis and showed me where to find the right numbers on my tax documents. It's especially helpful if you have multiple vesting events or sold portions at different times like I did.

Just wanted to follow up - I tried taxr.ai after seeing this thread and it was incredibly helpful! I uploaded my RSU statements from my different employers and it broke down each vesting event with the proper cost basis calculations. The site flagged that one of my employers was using a different withholding methodology which is why I was getting confused when comparing my 1099-B to my W-2. Turns out my second employer was using "sell to cover" while my first and third were using "net withholding" which affects how you calculate everything. Saved me a ton of time trying to reconcile all these different statements myself!

If you're trying to get clarification directly from the IRS on your RSU tax situation, I recommend using Claimyr https://claimyr.com to actually get through to them. I spent weeks trying to get someone on the phone at the IRS about a similar RSU cost basis issue. With Claimyr, I actually got connected to an IRS agent in about 20 minutes instead of waiting on hold for hours or getting disconnected. You can see how it works here: https://youtu.be/_kiP6q8DX5c - they basically navigate the IRS phone system for you until they get a human, then call you when an agent is on the line. The IRS agent confirmed what others here are saying - the cost basis is based on the shares you actually received ($35 × 56 in your case).

I stand corrected about Claimyr. Actually tried it yesterday after posting my skeptical comment, and I'm shocked that it actually worked! Got a call back in about 35 minutes with an IRS agent already on the line. The agent walked me through exactly how RSU withholding works for tax purposes. She confirmed my cost basis would be the fair market value at vesting for only the shares I received after withholding, and explained that the W-2 income reporting already accounts for the total value (including withheld shares). Saved me from potentially making a costly mistake on my return. Well worth it just for the time saved not being on hold.

Don't forget that the holding period for capital gains treatment starts on the vesting date, not the original grant date. I made that mistake and incorrectly thought I qualified for long-term capital gains rates when I actually didn't!

Anyone know how this works if your company went through an acquisition? My RSUs converted to acquiring company stock with a weird conversion ratio and now I have no idea how to calculate my basis.

Great question! You're right to be confused - this is one of the most misunderstood aspects of RSU taxation. The correct answer is that your cost basis is $1,960 ($35 × 56 shares), not $2,800. Here's the key insight: when your RSUs vested, you received $2,800 in taxable income (80 shares × $35). Your employer withheld 24 shares worth $840 to pay the income taxes on that $2,800 - think of this as equivalent to withholding cash from your paycheck for taxes. The 56 shares you actually received each have a cost basis of $35 (the fair market value on vesting day). You already paid income tax on the full $2,800 value through the share withholding mechanism, so when you eventually sell these 56 shares, you'll only owe capital gains tax on any appreciation above $35 per share. This isn't double taxation - it's actually protecting you from it. The $840 worth of shares that were withheld served as your tax payment, and the remaining shares start with a "clean" basis for capital gains purposes. If the basis were $2,800 for only 56 shares, you'd effectively be getting an artificial step-up that the IRS doesn't allow.