What a lockup is
When a company goes public, employees and early investors agree not to sell for a period, usually 180 days. It keeps a flood of shares from hitting the market right after the IPO.
Some lockups now release early in stages, for example if the stock trades above a set price after an earnings report. Check your company's prospectus (S-1).
Trading windows after the lockup
Even after the lockup, most employees can only sell during open trading windows, typically a few weeks after each quarterly earnings report. Your first real chance to sell may be later than day 181.
A 10b5-1 plan lets you set up future sales in advance so they run automatically, even in closed windows.
How each share is taxed when you sell
It depends on where each share came from:
- RSUs settled at IPO: you already paid ordinary income tax. Selling at lockup is usually short-term, under a year from settlement, so only the change in price since settlement is taxed.
- Exercised ISOs: selling less than 1 year after exercise or 2 years after grant is a disqualifying disposition. The spread becomes ordinary income with no withholding.
- Exercised NSOs or common stock held over a year: long-term capital gain on growth since exercise or purchase.
Picking which lots to sell
Your broker may let you choose specific lots. Sensible defaults:
- Sell lots with the highest basis first to keep gains small.
- Sell lots already long-term before short-term ones.
- Keep ISO lots that are close to their qualifying dates, if you're comfortable with the risk.
Don't forget the tax payment
Nothing is withheld on a stock sale. Set aside cash from each sale and make an estimated payment. See No withholding on stock sales.
Concentration risk
Many newly public stocks fall after the lockup ends. The tax you save by waiting for long-term rates (about 17 points federally) can be erased by a modest price drop. Diversifying is often worth the tax.
Plan it
Enter your exit plan in the calculator to compare selling at lockup with holding for long-term treatment.
General information, not tax advice.
Frequently asked questions
How long does a stock lockup period last for employees?
When a company goes public, employees typically agree not to sell their shares for a period of 180 days. However, some companies now implement staggered releases that allow shares to be sold early if the stock price trades above a specific target following an earnings report.
Can I sell my startup stock immediately when the lockup ends?
Not necessarily, because most companies only permit employees to sell shares during open trading windows. These windows usually occur for a few weeks following each quarterly earnings report, meaning your first actual opportunity to sell might not happen until well after the 180-day lockup period has expired.
How are RSU shares taxed when selling after an IPO?
Since you already paid ordinary income tax when the RSUs settled, selling them at the lockup expiration is usually considered a short-term transaction. You will be taxed only on the change in price that occurred between the settlement date and the date you sold the shares.
Do companies withhold taxes when I sell my startup stock?
There is no tax withholding applied to individual stock sales. You are responsible for calculating the amount owed, setting aside the necessary cash from your sale proceeds, and making an estimated tax payment yourself to cover the liability.
Official sources (for the detail-minded)
- IRC Section 1222Short- vs long-term holding periods
- IRC Section 422(a)(1)ISO holding rule for a qualifying sale
- IRC Section 421(b)What happens when ISO shares are sold too early
- 17 CFR Section 240.10b5-1SEC rule for pre-planned trading plans
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.
Double-Trigger RSUs at a Private Company: What Happens at IPO
Years of vested RSUs can become taxable on a single day, often before you're allowed to sell. Here's how to prepare.
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