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So let me give a simplified example to start. I have 1,000 RSUs that vested on June 1st 2018. The market value for them is $10 and $10,000 is accounted for on my W-2. 300 shares were automatically sold to cover the taxes and 700 shares were deposited into my account that I now own and can keep or sell. On February 1st 2019 I sell the 700 shares at 20 dollars per share totaling $14,000. My understand was that:

  1. The 300 shares that were automatically sold were to cover taxes but I might still have to pay more in taxes for 2018 to make up for any difference in amount that was sold for taxes and my actual tax bracket
  2. Since I did not sell any stock it 2018, I would not have to pay any taxes related to the 700 shared awards to my account (expected anything from #1)
  3. Since I sold the 700 shares in 2019, for the 2019 taxes that I would pay next year, I would have to report $7,000 in capital gains and pay my normal taxes bracket percentage (since I did not hold them for more than a year, they are short term gains) on only the gain (since when they vested they were valued at $7,000 and when I sold they were $14,000 so $14,000 - $7,000 = $7,000) and if I have multiple vested stock, I would basically do the same calculation for each one

I am not 100% sure on how to report that $7,000 as far as what tax form to fill out and what not which is why I asked the people doing my taxes about this after they submitted my 2018 taxes which is where the confusion begin. After I had my taxes submitted I asked the accountant just to verify this information and at first they seemed confused and then after a couple of days and I went back they said I would have to pay quarterly on what I sold and the IRS recommended I pay 110% of last year taxes during this year.

Now I am just confused as to why I would have to pay 110% of my last years taxes quarterly just because I sold off the RSUs that I got. The amount I paid in taxes last year has no relation to what I sold the stock for this year. I have only heard about this for people that run a self business like consultant work in which they need to pay taxes quarterly because they are not getting paid as a W-2 employee and therefore don't have any taxes taken out when they are paid.

Now I am going to go to another hopefully more qualified accountant to ask the same question and just review my 2018 taxes just in case but was my original understanding correct or flawed in some way?

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  • I think he meant 110% of your 2017 tax rate on the $7000 capital gain, not 110% of what you paid in taxes total for 2017. So if in 2017 you would have ended up owing, say, 0.2 * 7000 = 1400 on such a capital gain, pay 1400 * 1.1 = 1540. This way, even if your total tax liability ends up being even higher for 2018, you've at least paid enough in taxes (on the capital gains, at least) to avoid the underpayment penalty.
    – chepner
    Feb 23, 2019 at 1:23
  • As far as what to report, you should get a form from your broker next year documenting what you sold, when, and for how much. You'll use that to figure out your total capital gain for your 2019 taxes.
    – chepner
    Feb 23, 2019 at 1:25

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