How to Report RSUs and Other Equity Compensation on Your Tax Return

“In this world, nothing can be said to be certain, except death and taxes.” — Benjamin Franklin

If part of your pay comes in equity, whether RSUs, stock options, or an employee stock purchase plan, tax season tends to raise more questions than it answers. Each type is taxed differently, and each one shows up in a different place when you file.

The confusion usually starts when your tax documents arrive and the same income seems to appear twice. It is a common worry. Most of the time the income has already been taxed once through payroll, and you simply have to report it correctly so you do not pay on it again.

Reporting equity compensation accurately is one job. Deciding what to do with it is another: when to exercise, how much company stock to hold, and how a big vesting year affects everything else. This guide walks through both sides, so you can file with confidence and know which decisions are worth raising with your advisor.

Which types of equity compensation need tax reporting?

Georgia executives typically receive four kinds of equity from their employers: RSUs, NSOs, ISOs, and ESPPs. What you owe, and how you report it, depends on the type you hold and when a taxable event occurs.

Restricted stock units (RSUs)

An RSU is your employer’s promise to give you company shares once you meet a vesting schedule, usually based on time, performance, or both. The taxable event is vesting. When the shares vest, their fair market value that day counts as ordinary income, and your employer generally includes it in your W-2 wages.

Non-qualified stock options (NSOs)

An NSO lets you buy company shares at a set price, called the exercise or strike price. The taxable event is exercise. When you exercise, the difference between the fair market value and your exercise price is taxed as ordinary income and reported on your W-2. The IRS covers the basics in its guide to stock options.

Incentive stock options (ISOs)

ISOs work like NSOs but get different tax treatment. There is no regular income tax when you exercise. The catch is that the spread between fair market value and your exercise price can trigger the Alternative Minimum Tax (AMT), which surprises a lot of people. How the rest is taxed depends on how long you hold the shares after exercising.

Employee stock purchase plans (ESPPs)

An ESPP lets you buy company stock at a discount, often 5% to 15%. Here the taxable event is the sale. The discount is generally taxed as compensation, and any further gain or loss depends on how long you held the shares before selling.

How to report RSUs on your tax return

RSUs create two tax events: ordinary income when the shares vest, and a capital gain or loss when you sell. Both get reported. Here is how to keep them straight.

Start with your W-2

Your RSU income shows up in Box 1, bundled with your salary. To confirm it is right, compare the equity-earnings line on your final pay stub with the Box 1 total. Some employers also break it out in Box 14, though that varies by company.

Check whether shares were sold

Many companies automatically sell a portion of your vested shares to cover the tax withholding, a setup called sell-to-cover. You may never have logged into your brokerage account, but the sale still happened, and it still needs to be reported. Look for it on your Form 1099-B.

Read your 1099-B carefully

Your brokerage issues a 1099-B for every sale during the year. It lists your proceeds, but it often shows a $0 or incomplete cost basis for RSU shares. That happens because your employer already reported the income through payroll. Take the 1099-B at face value and you can end up paying tax on the same income twice.

Verify your cost basis before filing

This is where the costliest mistake happens. Your cost basis is the fair market value on the vest date, the amount you already paid tax on. Confirm it before you file. Because Georgia taxes RSU vest income at its flat 4.99% rate for 2026, an uncorrected basis on your federal return carries the same error onto your state return, so the double tax can hit at both levels.

Report the capital gain or loss

Subtract your verified cost basis from the sale proceeds. The difference is your capital gain or loss. Any gain on shares sold within 12 months of vesting is short-term and taxed at ordinary rates. Report each sale on Form 8949 and total it on Schedule D.

How to report ESPP income

ESPP taxes hinge on how long you hold the shares. Hold at least two years from the offering date and one year from the purchase date, and you have a qualifying disposition: the discount is taxed as ordinary income when you sell, and the rest is a long-term capital gain. Sell sooner and it is a disqualifying disposition, where the discount is reported as ordinary income on your W-2 in the year of sale, and any additional gain or loss goes on Schedule D.

How to report stock options

NSOs and ISOs are taxed very differently, so confirm which type you hold. Your grant agreement will say.

NSOs

NSOs are taxed at exercise. The spread between your exercise price and the fair market value that day is ordinary income, which your employer reports on your W-2 and withholds against. Your cost basis then becomes the FMV at exercise. If you sell later at a higher price, the additional gain is a capital gain, short-term or long-term depending on how long you held after exercise. Because the income is already on your W-2, you do not have an extra step to take at exercise.

ISOs

ISOs carry no regular income tax at exercise, which sounds simple. The spread between your exercise price and the FMV that day is an AMT preference item, so a large spread can leave you owing AMT even if you never sold a share that year. For favorable long-term treatment, you generally need to hold the shares at least two years from the grant date and one year from exercise. Sell sooner and part of the gain becomes ordinary income.

Reporting is only half the job

Filing correctly keeps you out of trouble, but the decisions you make before tax season usually matter more. When should you exercise your options, and in which year? How much company stock is too much to hold in one place? A large vesting year can push you into a higher bracket, trigger AMT, or reduce what you can save for retirement. Equity income also raises your Modified Adjusted Gross Income, and a higher MAGI can shrink or eliminate what you are allowed to contribute to a Roth IRA.

These are the questions a fiduciary advisor helps you work through, coordinating vesting schedules, concentration risk, retirement planning, and charitable giving so your equity supports the rest of your financial plan.

Final thoughts

Equity compensation is a real advantage for high earners, and it becomes manageable once you know how each type is reported. Your employer handles some of it for you. Other pieces, especially RSU sales, you have to report yourself. If your situation involves large grants, multiple vest dates, or a mix of options, one small error can be expensive, and the planning around it is often worth far more than the filing itself.

At Daner Wealth Management, we help Georgia executives coordinate equity compensation with the rest of their financial plan. Schedule a conversation to talk through where you stand and what fits your situation.

Frequently asked questions

What is RSU sell-to-cover tax reporting?

It is when your employer automatically sells some of your vested RSUs to cover the required tax withholding. Even though you did not initiate the sale, it is a reportable transaction, and your brokerage will include it on your Form 1099-B.

Should I sell my RSUs as soon as they vest?

Often, yes, though it depends on your situation. Once RSUs vest you have already paid ordinary income tax on their value, so selling right away usually triggers little or no additional tax. Holding instead is really a decision to keep concentrated company stock, which is a risk question more than a tax one, and it is worth weighing against the rest of your portfolio.

Do I need to report RSUs on my taxes?

Yes. The vesting income is already on your W-2, and if any shares were sold you also report those sales on Form 8949 and Schedule D. The same applies at the state level: Georgia follows the federal rule, so you owe state income tax on RSU income when it vests, at Georgia’s flat 4.99% rate for 2026. Keep in mind that Georgia does not offer a lower rate for long-term capital gains; it taxes them as ordinary income.

How does equity compensation affect my Roth IRA eligibility?

RSU income and gains from exercising options raise your Modified Adjusted Gross Income. A higher MAGI can push you past the Roth IRA contribution phase-out, which lowers the amount you can contribute or removes your eligibility for the year.

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