What Does the RSU Code on Your W-2 Mean?
Understand the RSU income on your W-2. This guide clarifies how this value is included in your wages and helps ensure you report it correctly to prevent tax errors.
This article clarifies what Restricted Stock Unit (RSU) information on your W-2 signifies and explains how to handle it for tax purposes to ensure you report your income correctly.
Decoding RSU Information on Your W-2
When your RSUs vest, their value is considered taxable income. This income is not listed with a special code on your Form W-2. Instead, your employer adds the total fair market value of the vested shares to your regular compensation, which is included in the total for Box 1 (Wages, tips, other compensation).
As supplemental wages, RSU income is also subject to Social Security and Medicare taxes. The RSU value is therefore included in Box 3 (Social Security wages) and Box 5 (Medicare wages and tips). Any taxes withheld by your employer are reflected in Box 2 (Federal income tax withheld), Box 4 (Social Security tax withheld), and Box 6 (Medicare tax withheld).
Some employers provide a breakdown in Box 14 (Other) of the W-2, labeling the RSU income amount. This is done for clarity, as the income is already accounted for within the main wage and tax boxes.
How to Verify Your W-2 RSU Income
To verify the RSU income on your W-2, you will need the transaction confirmation statement from your brokerage firm. This document provides the necessary details for each vesting event.
The calculation is the number of vested shares multiplied by the stock’s fair market value on the vesting date. For example, if 50 shares vested when the stock’s fair market value was $100 per share, the ordinary income is $5,000.
If you had multiple vesting dates during the year, perform this calculation for each event and sum the totals. You can compare this total to your final paystub or any amount detailed in Box 14 of your W-2 to confirm the figures align.
Using Your W-2 for Tax Filing
You will enter the information from your W-2 directly into your tax software or onto Form 1040. The figures in Boxes 1 through 6 already account for your RSU income and the associated taxes withheld.
If you sold any RSU shares after they vested, your brokerage will send you a Form 1099-B reporting the sale proceeds. The income reported on your W-2 establishes the cost basis for these shares, which is their fair market value on the vesting date. This is the amount you have already paid ordinary income tax on.
Failing to account for this cost basis can lead to being taxed twice on the same income. The Form 1099-B from your brokerage may report a cost basis of zero, which is incorrect for RSUs. You must adjust this on Form 8949, Sales and Other Dispositions of Capital Assets, by reporting the correct basis to accurately calculate your capital gain or loss.