Case study: holding RSUs through an IPO

What happens to four years of RSUs the day your private company finally goes public? They all come due at once, and the tax bill can arrive while the shares are still locked up. Here is how that played out for one engineer. She is a composite, the details changed to protect anyone real, but the shape is one I see every IPO season.

The setup

Call her Maya. She joined a private startup early and collected double-trigger RSUs for four years. Double-trigger means two things have to happen before the shares vest: she has to put in the time, and there has to be a liquidity event. She cleared the time trigger year after year, and nothing happened on her taxes, because the company was still private and there was no liquidity. The full mechanic is in double-trigger RSUs at a private company.

On paper she had a large pile of units. On her tax return, for four years, they showed up as nothing.

The IPO fires both triggers at once

Then the company went public. The IPO was the liquidity event, and the day it closed, every unit that had quietly satisfied its time requirement settled in a single moment. Four years of vesting compressed into one tax year.

Say those units were worth $600,000 at settlement. That entire amount became ordinary income, taxed like salary, in the year of the IPO. Had the same shares vested smoothly at an already-public company, the income would have spread across four years and four brackets. Instead it stacked into one, pushing her into the top bracket and across the extra surtaxes a spike like this can cross. For 2026 those are the 0.9% additional Medicare tax on wages above $200,000 single and $250,000 married filing jointly, and the 3.8% net investment income tax once income clears $200,000 single or $250,000 married filing jointly 2026. The full private-company version, where the bill can land on shares you cannot sell, is in the RSU tax traps that hit in April.

The trap: a tax bill on stock she could not sell

Her employer withheld at the flat federal supplemental rate, 22% 2026 up to $1,000,000 of supplemental wages and 37% above it. On $600,000 of stacked income, even that higher slice trailed her real top rate. She was short, and the gap ran into six figures.

Then came the second-order problem. She could not sell. The IPO came with a lockup, a stretch after the offering when insiders are barred from selling. So she owed a large tax bill, in cash, on shares she was not allowed to turn into cash.

What she did

She had cash on the sidelines, so she covered the shortfall with a quarterly estimated payment instead of waiting for April and eating a penalty. She mapped her lockup date the week of the IPO. And before it lifted, she wrote down exactly what percentage of the position she would sell on day one, so she was not making a concentration decision in the heat of a moving stock price.

When the lockup lifted, she sold most of it and diversified, keeping a slice for upside. Her basis on every share was the settlement-day value she had already paid ordinary tax on, so the sale only taxed the gain since then. The unwind logic is in sell at vesting or hold.

The lesson

An IPO turns paper into a tax bill overnight, and the lockup can mean the bill arrives before the cash does. The people who sail through it are the ones who sized the tax a year early, knew their lockup length, and had a sell plan written before the window opened. Maya did the math ahead of time, so the IPO was a windfall instead of a scramble. If yours is on the calendar, let’s talk before the shares settle, not after the W-2 shows up.