Understanding RSU Tax Reporting: Net Settlement vs. Forced Sale on My Company Stock

The key difference between net settlement and forced sale is how the transaction is structured, and yes, it absolutely impacts your tax reporting! In your situation, it sounds like you're experiencing a sell-to-cover method, which is typically considered a forced sale rather than a net settlement. Here's why this matters: With a forced sale, the entire vesting amount (all 130 RSUs in your case) is reported as income on your W-2, and the sale of the 26 shares becomes a separate reportable transaction on Schedule D (though typically with minimal gain/loss since they're sold immediately). Your company should already be including the full value of all 130 RSUs in your W-2 income on the vesting date. You'll need to report the sale of those 26 shares on Schedule D, but since they're usually sold immediately at vesting, there's typically little to no capital gain/loss to report. The remaining 104 shares are now yours with a cost basis equal to the fair market value on the vesting date. When you eventually sell these, you'll report that transaction with any gain/loss calculated from this basis.

I went through exactly the same issue last year and nearly paid tax twice until I found taxr.ai (https://taxr.ai). Seriously, this tool was a lifesaver for my RSU situation. I uploaded my Fidelity statements and W-2, and it automatically identified the incorrect basis reporting on my 1099-B for the shares that were sold to cover taxes. The tool explained that my company had already included the full RSU value in my W-2 income but Fidelity reported a zero basis on the 1099-B, which would have resulted in double taxation. It generated the correct Form 8949 adjustments and even provided a detailed explanation I could reference if audited. If you're dealing with RSUs, especially with multiple vestings throughout the year, I'd highly recommend checking it out. It saved me hours of confusion and potentially thousands in incorrectly reported taxes.

I want to follow up about taxr.ai that I asked about earlier. I decided to try it with my complicated RSU situation (had 5 vesting events last year and sold shares at different times). Wow - it actually sorted everything out correctly! It identified that my broker was using a $0 basis for the shares sold for tax withholding, which would have resulted in me paying tax twice on the same income. The tool created the correct Form 8949 with all the adjustment codes and explanations. What really impressed me was that it compared the income reported on my W-2 to the RSU values and confirmed everything matched properly. It explained which transactions were already covered by my W-2 income and which ones needed separate capital gains reporting. Definitely worth using if you're dealing with RSUs.

For anyone still struggling to get through to the IRS about RSU reporting issues (I spent WEEKS trying), I finally had success using Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in about 20 minutes when I'd been trying for days on my own. The agent confirmed that my company's RSU program was using the forced sale method, not net settlement, which affected how I needed to report it. They also explained exactly how to correct my prior year return where I'd messed this up. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically, it keeps redialing and navigating the IRS phone tree until it gets a human, then calls you to connect. Saved me hours of frustration and hold music.

I need to eat my words about Claimyr from my earlier comment. After another frustrating morning trying to reach the IRS about my RSU reporting situation, I decided to try it out of desperation. It actually worked exactly as advertised. I got the text that they were calling the IRS, and about 15 minutes later I got connected to an IRS representative who specialized in stock compensation. She explained that in my case, because my broker was using the "sell to cover" method, I needed to report the full vesting value on my W-2 (which my employer had already done) and then separately report the "sell to cover" transaction on Schedule D with an adjusted basis. What would have been days more of frustration turned into a 30-minute call that completely cleared up my confusion. Consider me converted.

Does anyone know how to determine if your company is doing true net settlement vs. forced sale? My company literature says they do "net issuance" of shares but I'm not sure if that's the same thing. With net settlement, I understand you never legally own the withheld shares, while forced sale means you technically owned them for a split second before they were sold. How do you tell which one your company does?

I'm getting super confused about the tax reporting across different vesting dates. Let's say I have RSUs vesting quarterly. Do I need to track and report each vesting event separately? My broker statement shows different FMV for each vesting date.

This is a great breakdown of the RSU tax reporting requirements! I wanted to add one important point that might help others avoid a common mistake I made last year. Even though your company reports the full RSU value (all 130 shares in your example) as income on your W-2, make sure you're not accidentally reporting this income again elsewhere on your tax return. I initially thought I needed to report the RSU vesting as "other income" in addition to what was on my W-2, which would have been double-counting. The W-2 income reporting handles the compensation aspect entirely. The only separate reporting you need to do is for the actual stock transactions (like the 26 shares sold for tax withholding) on Schedule D. Also, keep good records of your vesting dates and fair market values - you'll need these for calculating your cost basis when you eventually sell the remaining shares. Most brokers provide annual summaries that make this easier, but it's worth downloading and saving the individual transaction details as backup.

Great question, Derek! I went through this exact same confusion with my RSUs from Microsoft last year. Based on what you're describing with Fidelity automatically selling shares to cover taxes, you're definitely dealing with a "forced sale" situation rather than net settlement. Here's what you need to know: Your company should already be reporting the full fair market value of all 130 RSUs as ordinary income on your W-2 for the year they vested. This covers the tax on the compensation aspect. However, you'll also need to report the sale of those 26 shares that were sold for tax withholding on Schedule D. The tricky part is that your 1099-B from Fidelity might show an incorrect cost basis (often $0) for those sold shares, which would make it look like you have a big capital gain when you actually don't. Since you already paid ordinary income tax on the full value through your W-2, the cost basis for those sold shares should equal the fair market value on the vesting date. If the 1099-B basis is wrong, you'll need to use Form 8949 to make the adjustment. Most people miss this and end up paying tax twice on the same income. The remaining 104 shares you keep have a cost basis equal to their FMV on vesting date, so when you eventually sell those, any gain/loss is calculated from that point. Hope this helps clarify things!