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  1. 01/01/2022 - Company granted RSU worth $50,000. Total of 500 shares granted at $100/share.
  2. 01/01/2023 - 125(25%) of shares are vested. On vesting day, market value of each share is $200.
    1. This is $25,000(125 shares * $200 market price per share) income/bonus.
    2. Etrade sold 31 shares at $200/share to cover for tax (25% bracket)
  3. 03/01/2023 - Sold this lot at market price $150/share.

Questions:

  1. In the eyes of IRS, this is loss. Is that right?
  2. But this is not true loss as company gave me each share for $100 and I sold at $150. Is that right?
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    RSUs are just given to you, you don't pay for them. The number given may be determined by the price on the grant date, but you're never charged that price to obtain the shares. On the vesting date you get the shares, and you're taxed for your value on that date regardless of what the price was at the grant date.
    – The Photon
    Apr 1, 2023 at 6:00

1 Answer 1

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The full value of RSUs are taxable as compensation (W-2) income when they vest, which sets your cost basis for capital gains/(losses). The price increase or decrease from that cost basis is a short-term/long-term gain/(loss) accordingly.

The price on the grant date for RSUs has no bearing on the tax impact at vesting/sale, so we can ignore it for tax purposes.

  1. Your evaluation of the tax situation is correct: $25k ($200/share) compensation income on 1/1/23, 31 shares sold on 1/1/23 with no additional tax impact, and then a $4,700 (94 shares * $50/share) short-term capital loss on 3/1/23.

  2. It's a little more complicated with numbers, but I agree with the sentiment. You might have been slightly better off if the shares vested and were sold at $150 ($18,750 of compensation income, $0 gain), since your $4,700 loss can only offset $3,000 of ordinary income. It would be even worse if the $4,700 short-term loss ended up offsetting $4,700 of long-term gains. But yes, compared to if the company said, "We will give you a $12,500 cash bonus on 1/1/23" (equal to 125 shares at $100/sh), you walked away with more money because of the price appreciation over the year.

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