Your RSUs Vested and You Sold Shares. Why the W-2 and the 1099-B Disagree on a California Return

Most of the equity compensation I see on California returns is now RSUs, and the tax documents for them arrive in two pieces that do not agree. The W-2 reports the vest. The 1099-B reports the sale, usually with no basis. This article follows one case through both documents: a single California resident with a $190,000 salary whose 1,000 RSUs vested in March 2026 at $150 a share. The plan sold 400 shares that day to cover withholding, and she sold the other 600 in August at $165.

The vest was taxed as wages before you sold a share

When the shares were delivered, their value became compensation. IRC §83(a) includes in income the fair market value of property received for services once it is no longer subject to a substantial risk of forfeiture, and for RSU shares that moment is the vest. Her employer added $150,000 to box 1 of the W-2, which now shows $340,000. Withholding came out of the same event, which is why 400 of the shares never stayed in her account.

That $150,000 is also her cost in the shares. Under IRC §1012 and Treas. Reg. §1.61-2(d)(2)(i), the basis of property received as pay is the amount paid for it plus the amount included in income. She paid nothing and was taxed on $150 a share, so each share has a basis of $150.

Why does the 1099-B show no basis for shares that were already taxed?

Brokers must report basis to the IRS only for covered securities (IRC §6045(g)). The regulations limit that term to stock acquired for cash or moved into the account with a transfer statement reporting it as covered, and their own example of stock granted by an employer concludes that it is not covered (Treas. Reg. §1.6045-1(a)(15) and (b)(10)). So the broker reports the proceeds and either leaves box 1e blank or prints $0, with the lot marked as basis not reported to the IRS. Many brokers print the adjusted figure on a supplemental statement that is separate from the 1099-B and easy to miss when the form is imported into tax software. Where there is none, the vest confirmation gives the vest-date value.

The first thing I check on a return with RSU sales is the basis column of Form 8949. Her 1099-B shows total proceeds of $158,840. If that goes onto the return with no basis, the return reports a $158,840 gain when her real net gain is $8,840. The extra $150,000 is the vest income counted a second time. That second $150,000 sits on top of the $340,000 of wages already on the return, so it is taxed above them. It adds $52,500 of federal income tax at 35% and $5,700 of net investment income tax under IRC §1411, which applies because the return now calls the amount investment gain. It also adds about $15,600 of California tax, because it lifts her taxable income from about $343,000 to about $493,000, through the 9.3%, 10.3% and 11.3% brackets.

The Form 8949 instructions give the fix. When no basis is shown, or the basis shown was not reported to the IRS, the correct basis goes in column (e). When a wrong basis was reported to the IRS, it is entered as reported and corrected with code B in column (f) and an adjustment in column (g).

Sell-to-cover is a sale and needs its own line on Form 8949

The 400 shares sold on the vest date were hers before the plan sold them, and that sale is reported like any other. They went at $149.60 against a basis of $150, a short-term loss of $160, since the holding period starts at vest under IRC §83(f). The loss is allowed because the shares she kept came from the same vest and she acquired no other shares within 30 days (IRC §1091; Rev. Rul. 56-602). With monthly or quarterly vests, another vest inside that window can defer the loss as a wash sale. It is easy to leave this lot off the return because the cash never reached her. The IRS still holds a 1099-B showing $59,840 of proceeds, and its document matching can propose tax on the full amount when the return says nothing about it. Reporting the lot with its real basis settles that at no tax cost.

Why do I owe in April when tax was withheld at vest?

Employers withhold on a vest at flat supplemental rates. The federal rate is 22% on supplemental wages up to $1 million in a year (IRC §3402 and Treas. Reg. §31.3402(g)-1), and California's is the 10.23% that EDD sets for stock options and bonuses. Neither rate looks at her bracket. Federal tax on the $150,000 vest, stacked on her salary, is about $47,800 at the 2026 rates of 24%, 32% and 35%, against $33,000 withheld. Withholding on the vest is about $14,800 short of the tax on it, before the August sale is counted.

California runs the other way. Her taxable income sits in the 9.3% bracket (R&TC §17041), so the state tax on the vest is $13,950 and the employer withheld $15,345. For an employee whose taxable income stays inside that bracket, the shortfall on the vest is a federal one. California withholding falls behind only above the 9.3% bracket, which ended at $371,479 for a single filer on the 2025 schedule.

SDI is a separate charge: at 1.3% with no wage ceiling in 2026, it took another $1,950 from the vest and is not a credit against income tax. If the April balance is more than you can pay at once, I covered what happens next in You Cannot Pay Your Full Tax Bill by April 15.

California taxes the gain after vest at ordinary rates

The 600 shares she sold in August produced a $9,000 gain over the $150 basis. Five months is short term, so the gain is taxed at ordinary rates on both returns. Had the sale come after the one-year mark, the federal rate on that gain would fall from 35% to 15% under IRC §1(h), with the 3.8% net investment income tax applying either way, while the California tax would not change. California has no separate rate for long-term gains and taxes them on the same R&TC §17041 schedule as wages, 9.3% in her case, or $837. The same rule applies to stock option gains, which I wrote about in The ISO Qualifying Disposition Trap in California. That is the tax result, and whether to keep holding employer stock is an investment decision that a tax return does not answer.

An earlier return that used $0 basis stays open one year longer in California

The same mismatch may sit in returns already filed. A federal refund claim must be filed within three years of the date the return was filed or two years of the date the tax was paid, whichever is later (IRC §6511(a)). California allows four years, measured from the original due date or from the filing date of a timely return, or one year from the overpayment if that is later (R&TC §19306(a)). For a 2022 return filed on April 18, 2023, the federal period ended in April 2026 and the California period runs into April 2027. On a $150,000 basis error, that is at least $13,950 of California tax at a 9.3% rate, still recoverable after the federal claim has lapsed.

The California claim goes on an amended Form 540 with Schedule X. Before I recommend one I read the whole return for that year, because the FTB may raise other items from the same year to offset the refund. That review is where I start with anyone who contacts me about an earlier RSU year.

This article is general information, and its figures assume a single California resident for all of 2026 with the wages, vest and sales described, the standard deduction on both returns, and the 2025 California rate schedule.

Contact

Get in touch for expert advice.

Follow

Work with me

info@hskcpa.com

(949) 614-1133

© 2026. All rights reserved.
Privacy Policy | Terms of Use

Schedule Your Consultation

From tax filing to tax strategy, the next step is a conversation.

Client Portal

In-person consultations available: Los Angeles & Irvine (by appointment only)

한국어 가능