NSO Quesiton

[jw-rogers]

Have a client with a large NSO and RSU statement via 1099-B. I received everything possible from the client for these transactions. Basically, Client get's NSO grant in 2015 for  shares. Client exercises the options and sells the same day in 2019. Client gets RSU in 2019 and sells when company is sold in 2019.

I understand that both the NSO and RSU are ordinary income, my question is when I go back to the W2 and try to reconcile to box 14, these are crazy far off.

Also, the client received a 1099-B for both, I checked and all but the RSU have had taxes withheld. 

I'm fine with adjusting the basis on the 1099-B, but has anyone had this situation where box 14 and the 1099-B and underlying statements are crazy off? I've done a few of these before but none where the numbers are off like this. 

[itonewbie · Accepted solution]

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I understand that both the NSO and RSU are ordinary income, my question is when I go back to the W2 and try to reconcile to box 14, these are crazy far off.

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When you say Box 14 is far off, are you referring to RSU or the total of RSU and NQSO?  The reason I ask is that NQSO is reportable under Code V in Box 12 instead of Box 14.

Are the number of shares acquired via NQSO and RSU matching against those reported on the 1099-B?  If not, did you account for whether your client had retained some of those shares or had acquired company stocks from the open market?

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Client get's NSO grant in 2015 for  shares. Client exercises the options and sells the same day in 2019.

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What your client had was likely a cashless exercise.  Question is whether your client sold enough just to cover the option price and tax withholding, sold everything on the same day, or perhaps exercised more options than sold.

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Client gets RSU in 2019 and sells when company is sold in 2019.

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You're sure the RSU was delivered in stocks?  Especially if the company was going to be sold in the same year, the units could have been delivered in cash instead.

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Also, the client received a 1099-B for both, I checked and all but the RSU have had taxes withheld. 

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Since the sale of shares are not subject to tax withholding, are you referring to withholding on the W-2?  RSU is subject to withholding, just like NQSO.  There is no reason why no tax was withheld on RSU.  Something is not right.

Have you reconcile all the numbers against your client's payslips for the year, particularly for the period(s) during which the NQSO's were exercised and RSU vested?

[rbynaker]

Jensen gave you some great info to get you started.

Typically when I see RSU vesting it will be something like 10 shares vested consisting of 4 shares withheld to cover taxes and 6 shares delivered to broker.  The 6 shares show up on the 1099-B when sold.  Some brokers don't have any information that there were 4 additional shares vested and withheld, but some do.  Income from the full 10 shares vested shows up in the W-2.  I always get the last year-end paystub and tie YTD RSU compensation to the value of the shares vested and then to the basis in the shares delivered to broker.  If you have trouble with that, there should be an exercise report / pay stub for each lot exercised / vested that breaks down the compensation, taxes, etc.  You may just need to get all of these and crunch the numbers.

Also, typically I see NQSO sales reported on a 1099-B as covered but with "bad" basis reported.  I've been told this is per IRS instructions and MOST brokers also include a supplemental schedule that shows the actual basis in the shares (including amounts reported as taxable compensation in the W-2).  So, moral of the story, don't rely on the 1099-B "reported to IRS" numbers as basis.  Do your own homework and follow the shares.

As Jensen pointed out above, it's going to be key to follow the number of shares and not just try to follow the dollars.

Rick

[jw-rogers]

Thank you and @rbynaker - I was able to follow the NSO shares back to Box 12 in the W2 - amount was off by $50 which in the transaction description are fees.

I'm working through the RSU now - following the shares back and have the liquidating paystub.

I appreciate the help!