Selling of RSUs is considered gain based on vested date or grant date and sold date price difference?

Question

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?

Answer 1

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.