For high-earning tech professionals at companies like Meta, Google, and Salesforce, Restricted Stock Units (RSUs) are the cornerstone of total compensation. However, a systemic reporting gap between corporate payroll and retail brokerages creates a "tax trap" that costs engineers and PMs thousands of dollars every year.
This case study explores how "Hannah," a Meta E5 Product Manager, used Rally to identify a $14,200 overpayment error caused by the "Double Tax" phenomenon—a mistake her traditional CPA almost missed.
The Persona: Meet the "Hero"
Name: Hannah
Role: Senior Product Manager (E5) at Meta
Financial Profile: High equity compensation, multiple vest dates per year, recently diversified holdings to fund a primary residence down payment.
Hannah is representative of the modern "Equity-Rich" professional. She is financially literate but lacks the 40+ hours required to manually audit every vest line item against her brokerage's 1099-B. Like many in Big Tech, she assumed that because her taxes were "withheld" at the time of vesting, the rest of the process would be automated and accurate.
The Challenge: The "Double Tax" Villain
The problem began when Hannah decided to sell a significant portion of her vested Meta shares. She received her 1099-B from her brokerage (e.g., Schwab or Morgan Stanley) and was shocked to see a projected tax bill that seemed impossibly high.
Why Double Taxation Happens
When RSUs vest, they are taxed as ordinary income. Your company withholds a portion of shares to cover taxes, and the remaining shares land in your brokerage account. The "fair market value" on that vest date becomes your cost basis.
However, federal regulations often prevent brokerages from automatically reporting this adjusted cost basis on Form 1099-B. Instead, many brokerages report the cost basis as $0.
The Result: Hannah was being taxed on the full sale price of the stock as if it were 100% capital gains, despite having already paid 37%+ in income tax on those same shares when they vested.
The Stakes: For Hannah’s specific sale, the lack of cost-basis reporting created a phantom "gain" that resulted in a $14,200 unnecessary tax liability.
The Analysis: The Rally Tax Insight
Traditional tax software often misses these nuances because it relies on the user to "know" that the 1099-B is incomplete. Hannah’s CPA was prepared to file the forms as-is, assuming the brokerage data was the "source of truth."
Hannah connected her accounts to Rally.
How Rally’s Engine Diagnosed the Error:
W-2 vs. 1099-B Reconciliation: Rally’s algorithm automatically compared Hannah’s W-2 (which showed the RSU income already taxed) against her 1099-B (which showed $0 basis).
The "Red Flag" Alert: The Rally dashboard triggered a high-priority alert: “Cost Basis Mismatch Detected: Form 1099-B shows $0 basis for 450 shares of META. W-2 records indicate income already recognized.”
Visualization of the "Gap": Rally generated a comparative chart showing her "Reported Liability" ($14,200) vs. her "Actual Liability" ($0). It revealed that because the stock price had dipped slightly since her vest date, she actually had a capital loss she could use to offset other gains.
The Solution: Automated Cost Basis Recovery
Instead of spending a weekend in Excel spreadsheets, Hannah used Rally’s automated tools to bridge the gap between her payroll data and her tax filing.
Step 1: Generating Form 8949 (Adjusted)
Rally calculated the exact adjustment codes (typically Code 'B' for incorrect basis reported) required for IRS Form 8949. This ensured the IRS saw the correct "Adjusted Cost Basis" rather than the $0 reported by the brokerage.
Step 2: Disqualifying Disposition Tracking
Because Hannah had a mix of RSUs and some older ISOs (Incentive Stock Options), Rally tracked the "holding periods" to ensure she wasn't mislabeling short-term vs. long-term gains, further optimizing her effective tax rate.
Step 3: Audit-Ready Documentation
Rally provided a "Basis Step-Up Report." This document acted as a paper trail, linking her Meta paystubs to her brokerage sales, providing Hannah with peace of mind in the event of an IRS inquiry.
The Result: A $14,200 "Win"
The outcome was transformative for Hannah’s financial plan.
Tax Savings: Hannah eliminated the $14,200 overpayment entirely.
Net Impact: By proving her cost basis was higher than $0, her "gain" turned into a "loss," which she then used to offset $3,000 of her ordinary income.
Liquidity Found: The $14,200 saved went directly toward her home down payment, allowing her to avoid taking out a larger mortgage at current high interest rates.
Conclusion: Why You Can’t Trust Your 1099-B
The "Double Tax" trap is a silent killer of wealth for Meta, Google, and Amazon employees. Brokerages aren't "wrong"—they are simply following limited reporting requirements. It is the taxpayer's responsibility to correct the record.
CTA: Are You Being Double-Taxed?
If you sold RSUs this year and your 1099-B shows a $0 cost basis, you are likely overpaying the IRS.
Frequently Asked Questions (FAQs)
1. What is the "Double Tax" trap for RSUs?
Double taxation occurs when you pay taxes twice on the same shares:
At Vesting: Your company treats the fair market value (FMV) of the shares as ordinary income and withholds taxes (W-2).
At Sale: If your brokerage reports a $0 cost basis on your 1099-B, the IRS assumes the entire sale price is a capital gain. You are then taxed again on the full value of the stock.
2. Why doesn't my brokerage show the correct cost basis?
Brokerages are often prohibited by federal regulations from automatically "stepping up" the cost basis on Form 1099-B for certain equity awards. They report what you received the stock for (which looks like $0 to them) rather than the price at which you were already taxed (the FMV on the vest date).
3. How do I know if I'm being double-taxed?
Check your Form 1099-B. If you see your RSU sales listed with a "Cost or Other Basis" of $0.00 or "Blank," but you know those shares were part of your compensation and appeared on your W-2, you are likely being double-taxed.
4. Can’t my CPA or tax software just fix this for me?
Not always. Traditional tax software and many CPAs rely on the 1099-B as the "source of truth." Unless you manually provide the supplemental "Cost Basis Disclosure" documents or use a tool like Rally to reconcile your W-2 with your brokerage data, the error often goes unnoticed.
