IRS says I under reported 2021 taxable income by $25k because of unreported securities - what now?

I just got a letter from the IRS saying I failed to report around $25k of income from securities in my 2021 taxes. I'm completely confused because my 2021 W2 actually included that $25k IN my wages for the year already. My tax withholding method in Fidelity is set to "sell to cover" for these securities. Now they're telling me I owe nearly $9k that needs to be paid by January 17th unless I provide some kind of explanation. I honestly have no idea what to do next or how this happened. I thought I was being responsible by filing online through H&R Block, but apparently I missed something important. Is this just a matter of me not understanding the right documentation to file? Do I need a tax professional to help sort this out? I'm freaking out a bit about this unexpected tax bill right now.

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19 comments

Drew Hathaway

•8M

This sounds like a classic case of duplicate reporting. The IRS is probably seeing both your W-2 that included the securities income AND a separate 1099-B from your broker for the same securities. So the system thinks you earned that money twice. You'll need to respond to the IRS with a letter explaining that the $25k in securities was already included in your W-2 income. Include copies of your W-2 showing the securities were included, and any documentation from Fidelity showing the "sell to cover" arrangement. Also include a copy of your 1099-B if you received one. You don't necessarily need to pay the $9k right now. You can request a hold on collection while they review your explanation. Just make sure to respond before the January 17th deadline.

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Drew Hathaway

•8M

Yes, Fidelity can provide you with copies of past tax documents. Log in to your account and look for "Tax Forms" or "Documents" section - they typically keep these for several years. You can also call their customer service and they'll help you access these statements. I'd recommend responding in the same method the IRS contacted you. If they sent a letter, mail your response to the address provided on that letter. Include your name, Social Security Number, the tax year in question (2021), and the reference number from their notice. Keep copies of everything you send them and consider using certified mail so you have proof of when you responded.

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Laila Prince

•8M

Hey, I went through almost this exact situation last year with Schwab RSUs. The IRS computers often struggle with stock compensation reporting. I spent weeks trying to explain everything over the phone until I found taxr.ai (https://taxr.ai) which totally saved me. They have this document review system that analyzes your IRS notices and tax forms to identify exactly where the reporting issue is happening. I uploaded my W-2, 1099-B, and the IRS notice, and within a day they explained the double-counting issue and gave me a customized response letter to send to the IRS. They even pointed out exactly which box on my W-2 was showing the already-included income.

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Laila Prince

•8M

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Isabel Vega

•8M

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Marilyn Dixon

•8M

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Marilyn Dixon

•8M

It works by using an automated system that navigates the IRS phone tree and waits on hold for you. Once they reach a human agent, you get a call connecting you directly. It's basically like having someone wait on hold so you don't have to. I was skeptical too. I tried for 3 days straight to reach someone at the IRS on my own with no success. Claimyr had me talking to an actual IRS agent in about 20 minutes after starting their service. No magic, they just have a system that navigates the phone tree and waits through the hold times for you. The IRS doesn't give them special access - they're just solving the hold time problem.

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TommyKapitz

•8M

Had to come back and eat my words. After posting that skeptical comment, I was still stuck with my own IRS issue and desperate. Tried Claimyr as a last resort before the weekend, and I'll be damned - I was actually talking to an IRS agent in about 25 minutes! The agent confirmed I had a similar double-reporting issue with some stock sales and put a 60-day hold on my collection while I get documentation together. She even gave me the exact address and department to send my explanation to that would process it faster. Just got off the phone and had to post this update - sometimes being wrong feels pretty good.

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Angel Campbell

•8M

This happened to my brother with employee stock options too. The problem might be that you need to file Form 8949 and Schedule D to reconcile the difference between what shows up on your W-2 and what Fidelity reported to the IRS on the 1099-B. H&R Block software should have prompted you for this, but sometimes if you didn't explicitly enter the 1099-B information, it doesn't catch the issue. My brother had to file an amended return (Form 1040-X) showing the corrected calculation and ended up owing nothing extra.

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Angel Campbell

•8M

In your situation, I'd first respond to the letter with your explanation and documentation before the January 17th deadline. That stops the immediate collection process. Then ask in your response if they recommend you file an amended return or if your explanation is sufficient. Sometimes the IRS will adjust your return on their end once they understand the situation. Other times they'll explicitly tell you to file an amended return. The key is responding before the deadline so you don't get hit with the $9k bill while this is being sorted out.

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Paolo Ricci

•2M

I'm dealing with a very similar situation right now with my 2022 taxes! The IRS is claiming I didn't report about $18k in stock compensation, but like you, it was already included in my W-2. One thing that helped me understand what happened - I called my HR department and they explained that when you have "sell to cover" set up, the company reports the full value of the vested shares as income on your W-2 (which gets taxed as regular income), but then Fidelity also sends a 1099-B to the IRS showing the "sale" of those same shares to cover taxes. The IRS computer systems see both and think you earned the money twice. I'm still working through my response, but my HR rep said this is super common and they deal with it all the time. She recommended I include a letter from HR explaining their stock compensation reporting process along with my W-2 and 1099-B copies. Might be worth reaching out to your HR department too - they probably have template letters for exactly this situation since it happens so frequently with employees who have stock compensation.

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