By Harry Prabandham · Updated September 27, 2026
Equity Compensation
Selling RSUs After an IPO: Withholding, Lockups, and a Sell Plan
RSUs are taxed as wages when they vest; after an IPO, a written sell plan helps manage under-withholding, lockups, and concentration.
Selling RSUs After an IPO: Withholding, Lockups, and a Sell Plan
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How are RSUs taxed?
- The value of shares when RSUs vest and settle is wage income, subject to income tax, Social Security up to $184,500 in 2026, and Medicare.
- That value becomes your cost basis, so later price moves create capital gain or loss when you sell.
- Keeping vested shares is economically similar to receiving a cash bonus and using all of it to buy company stock.
- At a private company, double-trigger RSUs can vest in one large batch at the IPO, creating a big one-year income spike.
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How are RSUs taxed?
- The value of shares when RSUs vest and settle is wage income, subject to income tax, Social Security up to $184,500 in 2026, and Medicare.
- That value becomes your cost basis, so later price moves create capital gain or loss when you sell.
- Keeping vested shares is economically similar to receiving a cash bonus and using all of it to buy company stock.
- At a private company, double-trigger RSUs can vest in one large batch at the IPO, creating a big one-year income spike.
Why does RSU withholding often fall short?
- Federal supplemental withholding is a flat 22% on the first $1 million of supplemental wages in a year and a mandatory 37% above that.
- Someone in the 32%, 35%, or 37% bracket can owe much more than 22%, plus state tax; California withholds 10.23% on stock compensation, below its top rate.
- Some employers let employees elect a higher rate, up to 37%, on the first $1 million.
- Estimated payments can close the gap; paying 110% of last year's tax generally avoids penalties when prior-year AGI exceeded $150,000.
Lockups and trading windows
- IPO lockup terms vary, but the SEC notes most bar insiders from selling for 180 days; the terms appear in the prospectus.
- After the lockup, employees can usually trade only during open windows set by the company's insider trading policy.
- A Rule 10b5-1 plan sets future sales in advance and can operate during blackouts after a cooling-off period, 90 to 120 days for officers.
- Early trading after an IPO can be volatile, and there's no reliable pattern for when prices settle.
What does a sell plan look like?
- Many plans start with a target, such as reducing company stock below a chosen share of net worth by a set date.
- Common mechanics include selling each vest as it arrives, selling fixed amounts each window, adding price-based limit orders, or a mix.
- A schedule reduces the chance of freezing or chasing prices, though it can't avoid selling after a decline.
- Choosing specific lots lets you sell high-basis shares first; recently vested shares often carry little gain.
Tax details that affect timing
- Selling soon after vesting usually produces little gain; holding more than a year makes later gains long-term.
- The 3.8% net investment income tax applies to gains above $200,000 of modified AGI for singles and $250,000 for joint filers.
- Selling at a loss within 30 days of a new RSU vest or ESPP purchase can trigger the wash sale rule and defer the loss.
- Spreading sales across tax years or giving long-term shares to charity can change the total tax owed.
What if the stock falls after vesting?
- Income tax is set by the value at vest, so a later drop doesn't reduce the tax already owed.
- Capital losses offset gains, and only $3,000 a year of excess losses can offset ordinary income.
- This is the core risk of holding vested shares while planning to pay the tax later.
- Keeping cash set aside for the unpaid tax separates the tax decision from the investment decision.
Key takeaways
- RSUs are taxed as wages at vest, and default withholding often doesn't cover the full bill.
- Lockups, trading windows, and 10b5-1 plans determine when sales are possible.
- A written sell plan tied to a concentration target can reduce emotional, ad hoc decisions.
- Individual situations vary; confirm taxes with a CPA, since Rubric does not prepare tax returns and this is general education.
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