Brokers often report $0 cost basis on vested RSU shares, turning income you already paid tax on into a phantom capital gain. Here's how to fix it on Form 8949.
If you sold RSU shares last year and your 1099-B shows a cost basis of $0 — or something suspiciously close to it — your tax return is about to overstate your capital gain, sometimes by tens of thousands of dollars. The fix is simple once you see it: your real cost basis is the fair market value of the shares on the day they vested, because that amount was already taxed as ordinary income on your W-2. You correct the broker's number on Form 8949, and the phantom gain disappears.
This is the single most common error we see on tech-employee returns, and it's not the employee's fault. Broker reporting rules changed years ago in a way that forces many brokers to report $0 or the purchase price (also $0 for RSUs) as basis on shares acquired through equity compensation. The IRS gets that same 1099-B, so if you copy it onto your return without adjusting it, you pay tax on the same money twice. If you're new to equity comp, our full guide to RSU, ESPP, and stock option taxes covers the whole landscape; this post goes deep on the basis problem specifically.
RSUs are taxed at vest, not at grant and not at sale. On the vesting date, the fair market value of the shares you receive is compensation income. It lands in Box 1 of your W-2 alongside your salary, and your employer withholds taxes on it — usually by selling or withholding a chunk of your shares. (Whether that withholding is actually enough is a separate problem — see our post on the 22% RSU withholding trap.)
Because you already paid ordinary income tax on the vest-date value, that value becomes your cost basis in the shares. This is the same principle as buying stock with cash from your paycheck: the paycheck was taxed, so the stock you bought with it isn't taxed again — only the growth after purchase is. With RSUs, vesting is the purchase. Your "purchase price" is the vest-date fair market value, paid in the form of taxed compensation.
Under the broker reporting rules, brokers are generally not permitted to include the compensation element in the reported cost basis for shares acquired through equity compensation. So the broker reports what you paid out of pocket for the shares. For RSUs, that's zero. The 1099-B dutifully shows $0 basis (or leaves the basis box blank, coded as noncovered), and tax software that imports the form takes it at face value.
The result, if uncorrected:
Nobody at the IRS flags this for you. A return that over-reports gain sails through processing; the matching systems are built to catch under-reported income, not overpaid tax. If you don't catch it, the money is simply gone until you amend.
Say 200 shares of your company stock vested when the stock was at $150. That's $30,000 of compensation income — it's in your W-2 Box 1, and you paid ordinary income tax on it. A few months later you sell all 200 shares at $160, for proceeds of $32,000.
Multiply this across quarterly vests and multiple sale lots over a few years, and the overpayment gets serious. We've amended returns where the phantom gains ran well into six figures of overstated income.
You don't argue with the broker or wait for a corrected form — the broker is following its reporting rules. You make the correction on your own return, on Form 8949, which feeds Schedule D. Here's the process:
Good tax software supports this, but the import-and-accept workflow actively works against you — imported 1099-B data looks authoritative and most people never open the supplemental statement. If you sold ESPP shares too, the same broker-basis problem appears there with an extra twist involving the discount; our guide to ESPP qualifying and disqualifying dispositions walks through that math.
One more trap inside the trap. If your employer sell-to-covers — sells a slice of each vest to fund withholding — those sold shares also show up on the 1099-B, often with $0 basis. But their basis is the same vest-date value as the shares you kept. A same-day sale at the vest price should produce roughly zero gain, maybe a tiny loss after commissions. If your return shows a big gain on the sell-to-cover lots, the basis is wrong there as well.
If you spot this on a prior-year return, you can file an amended return to claim the refund — generally you have three years from the date you filed the original return to do it. Pull the supplemental basis statements for each year, rebuild Form 8949 with the corrected basis, and file Form 1040-X. For clients with several years of uncorrected RSU sales, the cumulative refunds routinely justify the effort many times over.
Your RSU cost basis is the vest-date value that was already taxed on your W-2 — never the $0 the broker reports. Fix it on Form 8949 with a code B adjustment.
RSU double taxation isn't a quirk of tax law — the law gets it right. It's a reporting gap between what your broker is allowed to print on a 1099-B and what your basis actually is. Every RSU sale needs a basis check against the vest-date value before it goes on your return, and every prior year deserves a quick audit if you've been importing 1099-Bs unquestioned. Beyond fixing the basis, there's real planning room in when and how you sell — our post on getting more from your RSU compensation covers that side. Taxagon's CPAs and EAs correct RSU basis on returns every season — if you'd rather have a pro handle your individual filing, reach out.
This article is general information, not tax advice for your specific situation. Tax law changes; figures are for the years stated.
Talk it through with a licensed US tax professional — we'll tell you honestly whether it applies to your situation.
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