Reading Your W-2 When You Have RSU Income: Box 1 vs Box 14
Box 1 sums all taxable wages including RSU vest value. Box 14 often repeats the RSU number for information. Here is how to reconcile them.
A staff engineer at Meta opened her 2025 W-2 in late January 2026. Box 1 showed $847,623. Box 3 showed $168,600. Box 5 showed $932,100. Box 14 had an entry labeled “RSU” with $612,000. Her paystubs added up to a base salary of $235,000. Adding up the numbers did not match. She emailed her CPA asking which number was wrong.
None of them were wrong. The W-2 was reporting correctly. The discrepancies trace to how different tax bases apply to different items. Box 1 is federal wages after all pretax deductions. Box 3 is capped at the Social Security wage base. Box 5 is Medicare wages, which have no cap. Box 14 is an informational field that companies use to label specific components of Box 1 for the employee’s reference.
Reading the W-2 correctly is a mechanical skill that matters for two reasons. It lets you verify the company got the RSU accounting right. And it lets you reconcile the W-2 to your 1099-B so that Form 8949 does not double-tax the same income.
The relationship between Box 1, Box 3, and Box 5
| Box | What it contains | Example |
|---|---|---|
| Box 1: Federal wages | Gross compensation minus pretax 401(k) minus pretax HSA minus pretax health insurance | $847,623 |
| Box 3: Social Security wages | Compensation subject to Social Security, capped at $168,600 for 2025 | $168,600 |
| Box 5: Medicare wages | Compensation subject to Medicare, no cap | $932,100 |
Box 5 is typically the largest of the three because 401(k) deferrals reduce Box 1 but not Box 5. A $23,000 traditional 401(k) deferral cuts Box 1 by $23,000 while leaving Box 5 unchanged. Pretax health insurance and pretax HSA contributions further reduce Box 1 below Box 5.
Box 3 caps at the Social Security wage base, which is $168,600 for 2025. Any compensation above that is not subject to Social Security tax. The cap is irrelevant for high-earning engineers except as an explanation for why Box 3 is small.
Reconciling the boxes
Box 5 minus Box 1 usually equals your pretax deductions for the year. In the Meta example, $932,100 minus $847,623 equals $84,477. That should be pretax deductions: $23,000 traditional 401(k), plus perhaps pretax health insurance around $7,000, plus HSA contributions, plus other pretax items. If the difference does not roughly match, there is an error somewhere.
What Box 14 tells you
Box 14 is an unstructured field. Companies use it to report information that the employee needs but that does not fit in the structured boxes. Common labels include:
- RSU: the dollar amount of RSU compensation included in Box 1.
- ISO: the bargain element of ISOs exercised during the year, for AMT reporting on Form 6251.
- ESPP: the compensation element of a disqualifying disposition.
- DIV EQUIV: dividend equivalents paid on unvested units.
- SICK: third-party sick pay.
- CA-SDI: California state disability insurance.
The RSU entry in Box 14 is informational. It does not add to Box 1; it identifies what portion of Box 1 is RSU compensation. If Box 1 shows $847,623 and Box 14 shows $612,000 labeled RSU, that means $612,000 of your Box 1 is from RSU vests and $235,623 is from other sources (base salary, bonus, other compensation).
Why the label matters
The Box 14 RSU label matters when reconciling against your 1099-B. When you sell RSU shares, the broker reports the sale on the 1099-B with a cost basis that may or may not include the compensation element. If the 1099-B shows basis as only the strike or only the exercise cost, you need to add the compensation amount (already taxed on W-2) to avoid double-taxation. The Box 14 RSU number is your reference for how much was already taxed.
The 1099-B cost-basis trap
Brokers changed their cost-basis reporting starting in 2014 under §6045(g). For covered securities, brokers report basis to the IRS. For equity compensation, the regulations only require the broker to report the strike price (for options) or the acquisition cost (which for RSUs is often recorded as zero at the broker level). The compensation element is supposed to be added by the taxpayer.
This means a typical 1099-B for RSU sales reports:
- Proceeds: actual sale price
- Cost basis: often $0 or the vest-date market price, depending on the broker
- Gain: proceeds minus basis
If the basis reported is $0, and the employee does not adjust, the entire sale proceeds get taxed as capital gain on Schedule D. That amount was already taxed as W-2 income at the vest. The employee pays tax on the same dollars twice.
Fixing the 1099-B on Form 8949
Form 8949 provides adjustment codes to correct broker basis reports. Code B is “basis reported to you on Form 1099-B was incorrect.” Enter the correct basis in the adjustment column, reducing the gain.
For an RSU sold at $220 that vested at $185, the W-2 already reported $185 per share as compensation. The 1099-B may show $0 basis, giving a reported gain of $220. The correct basis is $185, giving a correct gain of $35. The Form 8949 adjustment enters a $185 reduction to the reported gain.
Tax software from major vendors handles this if the user enters the “adjusted basis” field from the broker’s supplemental statement rather than the “cost basis” field from the standard 1099-B. Most broker supplemental statements for equity compensation provide the adjusted basis alongside the standard.
Cross-checking the RSU number in Box 14
To verify the Box 14 RSU amount is correct, sum the vest-date fair market values across all vests during the year. If five vests occurred with total vest-date value of $612,000, Box 14 should show $612,000.
The Box 14 number should also roughly match the amount from which supplemental withholding was deducted on the paystubs for vest events. Check a few paystubs for vest dates and sum the “RSU income” line items; the total should be within a few dollars of Box 14.
When Box 14 is missing or wrong
Some companies do not use Box 14 for RSU disclosure. The information then lives only in the stock plan administrator’s records. Fidelity and Morgan Stanley maintain year-end statements that itemize vests and their FMV. These statements serve as the reconciliation source when Box 14 is silent.
ESPP and ISO entries in Box 14
ESPP
A qualifying disposition of ESPP shares is reported partly as compensation and partly as capital gain. The compensation portion is the lesser of (a) the excess of the market price on the first day of the offering period over the purchase price (adjusted for the discount) or (b) the actual gain on sale. The company reports the compensation portion on the W-2 and often notes it in Box 14.
A disqualifying disposition of ESPP shares reports the full bargain element at purchase as compensation. That also shows up in W-2 wages and often in Box 14.
ISO
ISO exercises do not produce W-2 compensation if the holding is qualifying. The bargain element at exercise is an AMT preference item reported on Form 6251, not on the W-2. Companies issue Form 3921 after year-end to document the ISO exercise for the employee’s Form 6251 preparation.
A disqualifying disposition of ISO shares produces ordinary compensation equal to the lesser of the actual gain or the bargain element at exercise. That amount is reported on the W-2 and often in Box 14 with an “ISO” label.
The full reconciliation checklist
At year-end, cross-check the following before filing:
- Sum of vest-date FMV across all RSU vests → should equal Box 14 RSU line.
- Box 14 RSU + base salary + bonus + other wages → should approximately equal Box 1 plus pretax deductions.
- Total federal withholding on paystubs → should equal Box 2.
- For each RSU sale on the 1099-B, confirm basis includes the vest-date FMV. Adjust on Form 8949 with code B if the 1099-B shows lower basis.
- For each ESPP sale on the 1099-B, confirm the compensation element is added to basis if the sale was a disqualifying disposition.
- Sum of ISO exercise bargain elements on Form 3921 → enter on Form 6251 Line 2i.
Frequently asked
My Box 14 shows multiple entries. How do I read them?
Each entry is a label and a dollar amount. Common labels are RSU, ESPP, ISO, DIV, DIV EQUIV. The amounts are informational only. Box 1 already includes these amounts to the extent they are compensation.
Why is Box 5 so much higher than Box 1?
Pretax deductions reduce Box 1 but not Box 5. The largest contributor is usually the 401(k) traditional deferral.
What if Box 14 is blank but I had RSU vests?
Check the stock plan administrator’s year-end statement. Sum the vest-date FMVs. The company may have included the RSU compensation in Box 1 without a Box 14 label. This is permitted but less informative for the employee.
Do I include Box 14 on my tax return?
No. Box 14 is informational. The amounts are already in the appropriate structured boxes (Box 1, Box 3, Box 5) for tax reporting.
What if my 1099-B already shows the correct basis?
Some brokers report the full basis including the compensation element for “noncovered” or “adjusted” lots. If so, no Form 8949 adjustment is needed. Verify by comparing the reported basis to the vest-date FMV on your stock plan administrator’s statement.
Before you file, reconcile vest values and 1099-B basis using the RSU withholding gap calculator.
Fourteen years working with tech employees whose RSU income pushed them into brackets their payroll systems never saw coming. Reviews VestedGrant's RSU and vesting mechanics content.
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