Dealing with tricky sell-for-tax RSU vesting procedures

[George]

Hello All,

I work at a company that pays me in part with RSUs. The vesting process is "sell for tax", and looks a little like this:

1. N shares are vested in the current vesting period.
2. To pay taxes on my behalf, the company takes N shares, multiplies it by the fair market value (FMV) to get my taxable income T.
3. The company then calculates my tax liability based on T.
4. Based on my tax liability, the company sells S shares at price P. Note, FMV != P. I am left with N - S = R shares, my remainder. Sometimes a little cash is left over and that is left in my brokerage account as cash.
5. The R remaining shares are deposited into my account.

While this approach is similar to the vesting example in the beancount docs, there are some questions that make it not directly applicable.

1. My company does not tell me what the basis price for R is in my account. The example in the documentation has 131.3700 as the price of the stock when it is converted from RSURefund dollars into HOOLI stock. Unfortunately this number is not available in any documentation (statements, CSV exports, website) that my broker Schwab provides me. Additionally, my HR/compensation people at my employer have not been helpful in answering this question.
2. I get a pay stub for the tax paid on my RSUs. The problem is that the income from the RSUs is not the actual sale price, it's the FMV. Since FMV != sale price, there is another opportunity for my double entry accounting to not add up.

In general I'm hoping that others can share how they handle ambiguous situations like this. I have searched far and wide and found nothing.

Thank you.

[Red S]

Hello,

What you have sounds like the standard way of carrying out an RSU vest, including specifically, a "sell-to-cover" event.

1. Cost basis should be available in your Schwab website. I know you said it isn't, but I'd encourage you to call Schwab if you can't find it. Think about it this way: Schwab needs it to compute and report your gains when you (eventually) sell these, so they do record this info. What do you see under "unrealized gains" in your Schwab account?

2. Could you post an example of the transaction where the double entry accounting is not adding up?

[Martin Blais]

On Wed, Aug 3, 2022 at 12:45 PM George <tbarac...@gmail.com> wrote:

Hello All,

I work at a company that pays me in part with RSUs. The vesting process is "sell for tax", and looks a little like this:

1. N shares are vested in the current vesting period.
2. To pay taxes on my behalf, the company takes N shares, multiplies it by the fair market value (FMV) to get my taxable income T.
3. The company then calculates my tax liability based on T.
4. Based on my tax liability, the company sells S shares at price P. Note, FMV != P. I am left with N - S = R shares, my remainder. Sometimes a little cash is left over and that is left in my brokerage account as cash.

I'm surprised FMV != P. The brokers should have handled all of that atomically.

In any case, I assume you have the cash amounts and numbers of shares for both the vesting at FMV, and P sold for covering taxes?

 

1. The R remaining shares are deposited into my account.

While this approach is similar to the vesting example in the beancount docs, there are some questions that make it not directly applicable.

1. My company does not tell me what the basis price for R is in my account. The example in the documentation has 131.3700 as the price of the stock when it is converted from RSURefund dollars into HOOLI stock. Unfortunately this number is not available in any documentation (statements, CSV exports, website) that my broker Schwab provides me. Additionally, my HR/compensation people at my employer have not been helpful in answering this question.

I believe your basis should be FMV at the time of vesting. That's also your income.

If P != FMV, you'll have to report a gain/loss of (P-FMV) - this sounds annoying.

 

1. I get a pay stub for the tax paid on my RSUs. The problem is that the income from the RSUs is not the actual sale price, it's the FMV. Since FMV != sale price, there is another opportunity for my double entry accounting to not add up.

That sounds correct. The FMV is your income, and sets the cost basis of those shares.

I'd like to hear more about FMV != P... 

 

In general I'm hoping that others can share how they handle ambiguous situations like this. I have searched far and wide and found nothing.

Thank you.

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[Red S]

On Thursday, August 4, 2022 at 7:07:41 PM UTC-7 bl...@furius.ca wrote:

On Wed, Aug 3, 2022 at 12:45 PM George <tbarac...@gmail.com> wrote:

1. Based on my tax liability, the company sells S shares at price P. Note, FMV != P. I am left with N - S = R shares, my remainder. Sometimes a little cash is left over and that is left in my brokerage account as cash.

I'm surprised FMV != P. The brokers should have handled all of that atomically.

In any case, I assume you have the cash amounts and numbers of shares for both the vesting at FMV, and P sold for covering taxes?

Interesting. As a datapoint, I've never worked for an employer where FMV == P for a sell-to-cover RSU vest. There is always a small loss or gain.

For all my datapoints, FMV is taken to the closing price the day before the vest. P is the actual price obtained during the sale on the day of the vest. I've noticed that the actual sale's time-of-day varies each time, by upto 4 hours (i.e., in one case, the sell-to-cover sale was made about 4 hours after the market opened).

I'm just as curious as to the mechanics of FMV == P. How does the broker sell a large number of shares for exactly the same price, all in one instant? More precisely, how do they find buyers for such a large transaction?

[Martin Blais]

On Thu, Aug 4, 2022 at 10:19 PM Red S <redst...@gmail.com> wrote:

On Thursday, August 4, 2022 at 7:07:41 PM UTC-7 bl...@furius.ca wrote:

On Wed, Aug 3, 2022 at 12:45 PM George <tbarac...@gmail.com> wrote:

1. Based on my tax liability, the company sells S shares at price P. Note, FMV != P. I am left with N - S = R shares, my remainder. Sometimes a little cash is left over and that is left in my brokerage account as cash.

I'm surprised FMV != P. The brokers should have handled all of that atomically.

In any case, I assume you have the cash amounts and numbers of shares for both the vesting at FMV, and P sold for covering taxes?

Interesting. As a datapoint, I've never worked for an employer where FMV == P for a sell-to-cover RSU vest. There is always a small loss or gain.

I can only speak for the case of shares of GOOG w/ Morgan Stanley, but they certainly report it as if it was sold at the FMV. It could be that there isn't an actual sale on the day of - if you think about it that would be something someone could take advantage of - it's possible that it's just an accounting thing w.r.t. to the entity holding the shares and the firm is large and savvy enough to strike unusual arrangements to keep things simple so it's very possible you cases differ. I do see those vesting events report a "Rounding Variance" row, but explain the difference "due to rounding" and it is always very small in comparison with the amounts involved (e.g. roughly 1bps) so I doubt it's anything related to execution.  I don't really know.

For all my datapoints, FMV is taken to the closing price the day before the vest. P is the actual price obtained during the sale on the day of the vest. I've noticed that the actual sale's time-of-day varies each time, by upto 4 hours (i.e., in one case, the sell-to-cover sale was made about 4 hours after the market opened).

I'm just as curious as to the mechanics of FMV == P. How does the broker sell a large number of shares for exactly the same price, all in one instant? More precisely, how do they find buyers for such a large transaction?

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