How to determine RSU adjusted cost basis when shares were sold to cover taxes?

So RSUs can be confusing from a tax perspective because you're essentially taxed twice - once when they vest (as ordinary income) and potentially again when you sell the shares (as capital gains). When your RSUs vest, the fair market value on the vesting date is considered compensation income and appears on your W-2. In your case, that's $241.50 × 220 shares = $53,130. This amount has already been taxed as ordinary income, which is why they sold 83 shares to cover the tax withholding of $19,810.50. For the 137 shares you kept, your cost basis should be the FMV on the vesting date ($241.50 per share). When you eventually sell these shares, you'll only pay capital gains tax on any appreciation above $241.50 per share. For the 83 shares that were sold to cover taxes, the 1099-B is showing the proceeds from that sale. The slight difference between the cost basis ($20,025.25) and proceeds ($19,810.50) represents a small capital loss because the shares were sold at slightly less than the FMV at vesting. Make sure you report this on your tax return to avoid double taxation. When filing, you'll need to reconcile the 1099-B by reporting the transaction but also indicating that most of the proceeds were already included as compensation on your W-2.

After spending hours trying to figure out my own RSU mess last year, I finally found a service that made it super simple - https://taxr.ai actually specializes in analyzing RSU documents and 1099-Bs. My company uses a different broker than yours, but I was in a similar situation with shares sold for tax withholding. Their system can analyze your RSU vest documents and 1099-B together to determine the correct adjusted cost basis and how to report it. Even tells you exactly where to put the info in tax software. I had 3 different RSU vests last year plus ESPP purchases, and it would have taken me days to manually figure it all out. The tool basically confirmed what the previous commenter said - your cost basis for the remaining shares should be the FMV on vest date, and you need to make sure you don't get double-taxed on the portion already included in your W-2.

Just wanted to update that I actually tried the taxr.ai service mentioned above after my skeptical question, and it was legitimately helpful. I uploaded my Morgan Stanley documents and 1099-B and it immediately identified the issue - my cost basis on the 1099-B didn't reflect the compensation element already taxed on my W-2. The analysis showed that for my remaining 137 shares, my cost basis should be exactly $241.50 per share (the FMV at vesting). For the 83 shares sold for taxes, it showed me where to indicate on Form 8949 that the majority of the gain was already reported as income. What I appreciated was that it gave me specific line-by-line instructions for my tax software rather than just general advice. Definitely easier than trying to decipher all the broker statements on my own.

If you're having trouble getting straight answers from Morgan Stanley, you might want to try Claimyr (https://claimyr.com) - I was in the same boat last year with RSU questions and couldn't get through to an actual IRS agent for clarification. Spent days on hold with the IRS with no luck. Claimyr got me connected to an IRS agent in about 15 minutes who walked me through the whole RSU reporting process step by step. They have this callback system that basically waits on hold with the IRS for you - you can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that for RSUs, you need to make adjustments on Form 8949 to avoid double taxation. She actually emailed me a special worksheet they use internally for calculating RSU basis adjustments. Saved me a ton of stress and probably prevented me from making an expensive mistake.

I need to publicly eat my words about Claimyr being a scam. After my skeptical comment, I tried it myself as a last resort after waiting on hold with the IRS for 2+ hours three days in a row. Got connected to an IRS tax specialist in about 20 minutes who actually knew about RSUs (which surprised me). She confirmed exactly what I needed to do to properly report my Morgan Stanley RSUs on Form 8949. She explained that I needed to check Box "B" and use code "B" to indicate that the basis was reported incorrectly on my 1099-B. For the 83 shares sold for tax withholding, she walked me through entering the correct adjusted basis to account for the compensation already taxed on my W-2. For the 137 shares I'm still holding, she confirmed my basis is indeed the FMV on vesting date. Sorry for being so negative before - was just frustrated after weeks of trying to figure this out on my own.

Another thing to watch out for with RSUs - make sure you're tracking each vest separately for when you eventually sell those 137 shares. Each vest creates its own tax lot with its own cost basis and holding period. I made the mistake of selling some RSU shares last year without specifying which tax lot to sell from, and my broker defaulted to FIFO (First In, First Out), which wasn't the most tax-efficient choice for me. Would have been better to sell some higher-cost-basis shares to minimize my capital gains. Also, don't forget that the holding period for long-term capital gains treatment starts on the vest date, not the grant date. So those August 2024 shares won't qualify for long-term capital gains rates until August 2025 at the earliest.

I've been dealing with RSUs for years and the most important thing is keeping good records! The 1099-B often has the wrong cost basis for RSUs, so I always create my own spreadsheet tracking: 1) Vest date 2) Number of shares vested 3) FMV per share on vest date 4) Number of shares sold for taxes 5) Sale price for tax shares 6) Remaining shares and their cost basis For your situation, your cost basis for each of the 137 shares you kept is $241.50. When you eventually sell these shares, you'll pay capital gains tax only on the difference between your sale price and $241.50. As for the shares sold for taxes, you have a small capital loss because they sold at $238.75 instead of $241.50. Make sure you report that correctly to get the tax benefit!

I went through this exact same situation with my company's RSUs last year! The key thing to understand is that your 1099-B is only showing the transaction for the 83 shares that were sold to cover taxes, not all 220 shares that vested. Here's what's happening: When your 220 RSUs vested in August 2024, the full $53,130 ($241.50 × 220) was added to your W-2 as ordinary income and you were taxed on it. Your company then sold 83 shares at $238.75 each to cover the $19,810.50 in taxes. The 1099-B shows this sale of 83 shares, with proceeds of $19,810.50 and a cost basis of $20,025.25. The cost basis being slightly higher than the proceeds means you actually have a small capital loss of about $214.75 on those shares sold for taxes. For the 137 shares you kept, your cost basis is $241.50 per share (the FMV at vesting). These shares don't appear on any 1099-B until you actually sell them. When filing your taxes, you'll need to report the 1099-B transaction but make sure to indicate that the compensation element was already included in your W-2 to avoid double taxation. Most tax software will handle this automatically when you enter both your W-2 and 1099-B information. The fact that your brokerage doesn't have additional documentation is unfortunately normal - the 1099-B is all they're required to provide.

One additional tip that might help for future reference - I always recommend downloading and saving your RSU release documents immediately when they vest. Companies sometimes change brokerages or systems, and those detailed vest confirmations can be harder to access later. Also, if you have multiple RSU grants or future vests, consider setting up a simple tracking system now. I use a basic spreadsheet with columns for vest date, shares vested, FMV at vest, shares sold for taxes, and remaining shares. It makes tax time so much easier when you have everything organized in one place. The IRS has been cracking down on unreported stock compensation lately, so having good records is more important than ever. Your situation sounds straightforward now that others have explained it, but having that documentation trail will be valuable if you ever get audited or have questions in future years.