1

Do RSU sell to cover come out of the oldest shares you own like traditional stock sales?

Say I buy 100 shares of my company Foo, Inc. as of Jan 1, 2020. If on Jan 1, 2021 I could sell and pay long term capital gains bracket for all those shares.

Instead, if on December 1st 2020 I'm granted 100 new shares, with sell-to-cover (say 40 shares get sold to cover the taxes), will the resulting tax if I sell the remaining shares on Jan 1, 2021 be:

  1. (100 * Price * long term capital gains %) + (60 * Price * Short term capital gains %)
  2. (60 * Price * long term capital gains %) + (100 * Price * Short term capital gains %)
  • USA, updated tags – Ray Sep 2 at 0:01
2

Every time I've had taxes withheld from RSUs, the "shares" were taken out of that grant automatically. I don't know if there's even a way for the grantor to look to see if you already own shares to sell. So the 100 shares you already own would be subject to long-term gains and the net shares you were awarded would be subject to short-term gains.

Also you'd be taxed on the gain, so your formula would be:

  (100 * (Price - cost_basis_1) * long term capital gains %) 
+ (60  * (Price - cost_basis_2) * Short term capital gains %)

where cost_basis_2 is the value of the shares on the award date, which is credited to you (and taxed) as normal income.

| improve this answer | |
  • My company does not withhold the shares prior to issuance, the financial provider Fidelity in this case gets all the shares allocated, then X number are sold. – Ray Sep 2 at 18:36
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    When receiving an RSU grant at Fidelity, the only transaction I've ever observed is the "purchase" of the net resulting shares. None have ever affected a previously purchased lot; the shares sold are effectively from the grant itself. – chepner Sep 2 at 18:45
  • Specifically, the trade confirmation mentions a distribution of X shares, with Y shares having been "netted" to cover taxes, and X - Y net shares deposited to my account. No actual sale is mentioned, only the market value of the distribution. – chepner Sep 2 at 18:58
  • @Ray interesting - does it show your existing shares in lots? Or just a total share balance? – D Stanley Sep 2 at 19:20
  • It is single pool. Using the above example numbers, would see the order/transaction history shows purchase record of 100 then a day later a record sold of 40. – Ray Sep 2 at 19:38

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