What is Double Trigger RSUs?

The short version

Two conditions, no shares until both

You own nothing until two conditions are met: a time based vesting condition, and a liquidity event such as an IPO or an acquisition. Until both have happened you hold no shares and owe no tax.

One year, the full W-2 hit

When the second trigger fires, your employer reports the full market value of everything that has vested as ordinary income on your W-2 in a single year, and withholds at a flat supplemental rate that leaves a high earner short.

Delivery triggers tax, not the ability to sell

Your employer triggers the tax by delivering the shares, not by your being able to sell them, so a lockup can stop you selling for months after you owe the money.

Key point

The tax is triggered by delivery of the shares, not by your ability to sell them.

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Why the structure exists

Why double trigger vesting exists

Private companies use double trigger vesting for a practical reason. If shares were delivered on a time schedule alone, employees would owe tax on stock they could not sell and the company could not help them sell it. Adding a liquidity condition defers the whole problem until there is a market.

The company does not remove the problem for you. It moves the whole of it into one year.

01The two triggers

The two triggers

Trigger one — time

Trigger one, time. The ordinary vesting schedule, often four years with a one year cliff. Meet it and you still hold nothing you can sell or keep.

Trigger two — liquidity

Trigger two, liquidity. Usually an IPO or an acquisition, defined in your grant agreement. Read the definition, because some agreements set the trigger at a date after the listing rather than on it.

Leave before the second trigger and you usually forfeit the vested units, however long you served. Anyone weighing an offer while holding pre IPO RSUs should price that in before resigning.

02Settlement day

What happens on the day it settles

Your employer settles every unit that has met the time condition, all on the same day.

The full market value of those shares counts as compensation. Your employer reports it on your W-2 and withholds income tax and payroll tax on it.

Stay at the company several years and several years of vesting reach you in a single tax year. You can find yourself in brackets you have never occupied, paying the additional Medicare surtax, and losing deductions and credits that phase out at higher income.

03Withholding

The withholding shortfall

The company withholds. It usually does not withhold enough.

Your employer withholds on supplemental wages at a flat statutory rate. If the settlement has pushed your total income into the highest brackets, your employer has withheld at a rate well under the one you will actually pay, and you owe the difference.

Companies usually sell a portion of the shares on your behalf to cover the withholding. That covers the statutory rate, not the rate you will actually pay. You pay the balance with your return in April, and you may need to make an estimated payment during the year to avoid an underpayment penalty. Ask us to work out whether a safe harbor payment covers you, because paying enough during the year removes the penalty even where a large balance remains.

Reporting the sale correctly

When you sell the shares, your broker reports a cost basis that leaves out the compensation income already taxed on your W-2. For most RSUs the broker shows zero, a blank, or marks the basis as not reported, because you paid nothing for the shares. File the 1099-B as it stands and you pay tax twice on the same money, once as wages and once as a capital gain you never made.

Your real basis. The amount already included in your W-2 wages for that vesting, plus anything you paid for the shares, which for most RSUs is nothing.
If the broker reported basis to the IRS. Do not overwrite it. Report the broker's figure as issued and make the correction as an adjustment on Form 8949 with code B, so your return still reconciles to the statement your broker sent the IRS.
If the broker did not report basis to the IRS. Enter the correct figure directly. No adjustment code needed.
Get the supplemental statement. Most brokers publish one each season showing the adjusted basis. Ask for it before you file, so you do not have to reconstruct the figure from old pay records.

Our page on RSU taxation works through the reporting in detail.

04Liquidity isn’t liquidity

The lockup trap

After an IPO you are typically locked up for a period during which you cannot sell. The tax was triggered when the shares settled.

So you can owe a large tax bill on shares you cannot yet sell, in a stock that may fall a long way before you are allowed to act. Your bill is fixed at the settlement price, and a fall after that does not reduce it.

There is no election that fixes this. An 83(b) election applies to restricted stock, not to restricted stock units, so it is not available here.

Delivery

is what triggers the tax, not your ability to sell the shares

No 83(b)

election is available — it applies to restricted stock, not restricted stock units

05After the lockup

After the lockup ends

The lockup ending does not always mean you can sell. Public company employees usually sell inside a trading window, and companies close those windows around results and other announcements.

Trading windows. Your company sets open and closed periods and tells you which you are in. Companies set these themselves, so the rules are your employer's rather than the SEC's, and your company can close a window immediately after the lockup ends.
Pre-clearance. Your company's policy will say whether you need approval before each trade. Public companies file that policy as an exhibit to their annual report, so you can read your own.
Scheduled selling plans. Employees with regular access to inside information often sell through a Rule 10b5-1 plan, set up at a time when you are not holding inside information. The plan cannot start trading for a waiting period after you adopt it, which is 30 days for employees who are not directors or Section 16 officers, and longer for those who are.
Concentration. Once you can sell freely, the question stops being tax and starts being how much of your net worth you hold in one company.

Ask us to look at the sale schedule alongside the tax year. Your company sets one and the calendar sets the other, and neither takes account of the other.

06Planning

Planning for the year the income lands

Several decisions are worth more in the settlement year than in any other, because it is probably the highest income year you will have.

Charitable giving. Giving in a high income year is usually worth more than giving in a normal one. Some people bring several years of intended giving into the settlement year through a donor advised fund.
What changed for 2026. Two rules change that arithmetic, so model it before you give. The first 0.5% of your AGI in giving is not deductible, which is a large number in a spike year. And for filers in the top bracket, the value of itemized deductions is capped below the marginal rate.
What not to stack. A Roth conversion, a large capital gain, or a second liquidity event all cost more in this year than in a normal one. Where you control the timing, move them out.
Phase-outs. You lose deductions and credits that taper at higher income in a spike year, and get them back the year after. Settlement-year clients feel the state and local tax deduction most, because Congress phases the cap down above a high income threshold and resets the threshold each year.
The following year. Income usually falls back after settlement, so a deduction you can defer into the next year is worth less, and a gain you can defer is worth more.

Send us the grant and the expected timing and we will model the year before you are inside it.

07Before it happens

What to do before the liquidity event

Model the year before it happens. If your company expects to list, do the work in the months beforehand, because by April the year is closed and most of the choices have gone.
Check the withholding rate. Some companies let you elect a higher rate on the shares they sell to cover withholding. Where yours does, electing it costs you nothing and closes most of the gap in advance.
Plan the sale as well as the tax. Holding the stock to manage the tax leaves you concentrated in one company, and selling to diversify can add a capital gain on top of the compensation income.
Watch the state line. If you worked in more than one state while the units vested, those states can each tax a share of the income, and New York audits this closely. Our page on state tax considerations covers how states divide income between them.

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From the record

On planning before the liquidity event lands

You just sold a home and you know you have capital gains. You just got married and you don’t know what your taxes are going to look like with your spouse. You just had a child and you don’t know how that’s going to impact your taxes. You just made a big purchase or you made a big sale in cryptocurrency or equity or stock. You don’t know how that will affect your taxes. Plan early because if you don’t there might be a surprise.

George Dimov, CPA

I cannot recommend the Dimov tax team enough. They helped me fix two of my tax returns and helped me get back over 10k that was improperly filed by my previous accountant… They have a great knowledge of RSUs.

Nina

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Before the liquidity event

[ Model it before the liquidity event ]

Tell us your grant, your vesting to date, and the expected timing. We will show you the tax year it lands in and what to set aside. Call (212) 641-0673 or send the contact form. No charge for the conversation.