What double-trigger means
Private companies rarely want employees owing tax on shares they can't sell. So most RSUs have two triggers that must both happen before shares are delivered:
- Time-based vesting: you stay employed through each vesting date.
- A liquidity event: usually an IPO or an acquisition.
Until the second trigger, nothing is taxed. Once it happens, every RSU that has met its time-based vesting settles at once.
Why the IPO year is so expensive
Say you joined four years ago with 40,000 RSUs, and 30,000 have met their time-based vesting. If the company IPOs and settles them at $40:
- $1.2 million of ordinary income in a single day
- on top of your salary
- almost all taxed at the 37% federal rate
Supplemental withholding is 22% on the first $1,000,000 of supplemental wages and 37% above that. On a large settlement the combined withholding may be close to right federally. Mid-sized settlements of $200k to $1M are where the gap tends to be widest.
Settlement timing
Companies often settle at the IPO date or shortly after, sometimes on a set date after the first earnings. Your plan documents or the company's IPO FAQ spell it out. The settlement-date price sets both your income and your cost basis.
Which price counts: the open, the close, or something else?
On IPO day the stock has several prices: the IPO offering price (set by the bankers the night before), the opening price (the first trade that morning), and the closing price (the last trade of the day). For your RSUs, what matters is the price on your settlement date, the day the shares are actually delivered to your brokerage account. Your company's equity plan defines exactly how that price is measured.
- Most common: the closing price on the settlement date.
- Also common: the closing price on the last trading day before settlement.
- Rare: the opening price, the day's average, or the IPO offering price.
Settlement often isn't IPO day itself. Many companies deliver shares a few days or weeks later, so first-day prices may never apply to you.
Example: a stock IPOs at $40, opens at $55 and closes at $50. Your company settles RSUs one week later using that day's close of $46. Your taxable income and your cost basis are both $46 per share, not $40, $55 or $50.
Where to find your number: your plan document or RSU agreement (look for "fair market value"), your company's IPO FAQ, and after settlement your equity portal's release confirmation, your pay stub and your W-2.
The lockup problem
You usually can't sell for about 180 days after the IPO. Sell-to-cover at settlement pays the withholding, but any under-withholding comes out of your own cash. Meanwhile the stock price can fall.
If the price drops below your settlement value before you can sell, you still owe tax on the higher value. You get a capital loss when you sell, but only $3,000 a year of losses can offset ordinary income.
Checklist before the IPO
- Find out how many RSUs will settle at the event, and when.
- Estimate your total 2026 income and the withholding gap.
- Plan how you'll pay the gap: extra W-4 withholding or estimated payments.
- Decide in advance what you'll sell when the lockup ends. See IPO lockup planning.
- Watch the one-year mark from settlement if you plan to hold.
Model your IPO
Enter your RSUs in the calculator with an event price to see the IPO-day tax, what's withheld, and the shortfall.
General information, not tax advice.
Frequently asked questions
What happens to double-trigger RSUs during an IPO?
Double-trigger RSUs require both time-based vesting and a liquidity event like an IPO to trigger. Once the IPO occurs, every RSU that has already met its time-based vesting requirements will settle simultaneously. This causes the total value of those shares to be treated as ordinary income on that specific date.
How is the tax price for RSUs determined at IPO?
The taxable income is based on the stock price on the day your shares are actually delivered to your brokerage account, known as the settlement date. Your specific company equity plan document defines exactly how this price is measured, which is most commonly the closing price on that day.
Why do I owe taxes if my RSU stock price drops?
Your taxable income is locked in at the stock price on your settlement date, even if you are restricted from selling due to a lockup period. If the share price falls significantly before you can sell, you will still owe taxes based on the higher settlement value, which could result in a capital loss.
What is the withholding gap for RSU settlement?
Supplemental withholding is 22% on the first million dollars of supplemental wages and 37% above that amount. This means that mid-sized settlements between $200,000 and $1,000,000 often face a gap where the taxes withheld by your company are lower than your actual total tax obligation for that income.
Official sources (for the detail-minded)
- IRC Section 83When stock you get for work becomes taxable income
- Treas. Reg. Section 1.409A-1(b)(4)Short-term deferral rule that lets RSUs settle after vesting
- Treas. Reg. Section 31.3121(v)(2)-1When Social Security and Medicare apply to deferred pay
- IRS Publication 525IRS guide to restricted stock and stock awards
Run your own numbers
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Keep reading
Buying Pre-IPO Shares on the Private Market: The Tax Basics
The IPO isn't a tax event for you. What matters is your purchase price, your purchase date and when you sell.
RSU and Stock Option Taxes at IPO: What Employees Owe
What happens to your RSUs, options, and shares when your company goes public, why the 22% withholding usually falls short, and how to plan around the lockup.
IPO Lockups: How to Plan Your First Sale
When the lockup ends, you can finally sell. Decide before that day which shares to sell, how the gains are taxed, and how you'll pay the tax.
Tender Offers and Secondary Sales: How They're Taxed
A tender offer lets you sell before an IPO. Depending on what you sell, the proceeds can be a capital gain, wages, or both.
Estimates only. Not tax, legal, or investment advice. See our methodology